Matter of Hines, Bankruptcy No. 3-80-02006.
| Decision Date | 21 April 1982 |
| Docket Number | Bankruptcy No. 3-80-02006. |
| Citation | 20 BR 44 |
| Parties | In the Matter of Albert L. HINES, Marjorie Hines, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Ronald E. Reichard, Dayton, Ohio, for Sears.
George Ledford, Englewood, Ohio, Trustee.
Donald F. Harker, III, Dayton, Ohio, for debtor.
DECISION AND ORDER
This matter is before the Court upon the "Trustee's Objection to Allowance of Claim and Recommendation" filed on 27 July 1981. The Court heard the matter on 2 September 1981, and the parties subsequently submitted legal memoranda. The following decision is based upon the record and the memoranda.
The pertinent facts are not in controversy. Debtors filed an 11 U.S.C. Chapter 13 Petition on 7 July 1980. Debtors' Schedules list Plaintiff as an unsecured creditor in the amount of $670.39. Each Debtor maintained a separate credit account with Sears, Roebuck & Company, (hereinafter the Creditor), and the scheduled amount purports to be the aggregate balance due on both accounts as of the Petition filing. On 6 August 1980, Creditor filed its first proof of claim, listing secured debt on a "tool chest" (apparently a tool cabinet) in the amount of $264.04, based upon the outstanding balance on the account in the name of Albert L. Hines and accepting the Plan. The Meeting of Creditors, (see 11 U.S.C. § 341), was held on 7 August 1980; and the hearing on confirmation was held later on the same day conformably to local practice.
At the hearing on confirmation, the Court found statutory compliance based upon the Trustee's report and recommendation and an Order Confirming Plan was duly entered, no adverse interests appearing at the hearing.
On 18 August 1980, Creditor filed a second proof of claim listing a secured debt on "tools" in the amount of $248.08 and unsecured debt in the amount of $144.92, for a total of $393.00 based upon the outstanding balance due on the account in the name of Marjorie Hines. The documents attached to Creditor's second proof of claim prima facie indicate that Creditors retained a purchase money security interest in a "tool set" which was purchased on Marjorie Hines' account for $299.00, not including state taxes, at an annual percentage rate of eighteen per cent.
The first Proof of Claim is not in issue instanter. The Trustee, however, objects to allowance of the second Proof of Claim filed on 18 August 1980, as secured on the ground that the Proof of Claim, insofar as it represents a claim for secured debt, was untimely under Bankruptcy Rule 13-302(e)(1); but recommended allowance as unsecured in the amount of $393.00. The attachment to the Trustee's allowance of claims shows Sears as allowed as "secured" in the amount of $264.04.
Debtors' Plan provides that disbursement shall first be made to allowed priority claims under 11 U.S.C. § 507, and then to the National Exchange Bank, as a secured creditor in the amount of $6,382.52. The Plan then provides that the remainder shall be distributed pro rata to unsecured creditors, who will thus receive approximately a twenty per cent dividend. Debtors' Plan does not make reference to or provision for Creditor's claims as secured.
The basic issue before the Court is whether Bankruptcy Rule 13-302(e)(1) operates as a bar to the filing under 11 U.S.C. Chapter 13 of a secured claim after the 11 U.S.C. § 341 Meeting of Creditors. The parties do not dispute that the total amount of Creditor's second claim is $393.00, as alleged. The parties, however, present this matter for determination of only the question of the timeliness of the second Proof of Claim, and the effects thereof.
Bankruptcy Rule 13-302(e)(1) provides:
(1) Secured Claims. A secured claim, whether or not listed in the Chapter XIII Statement, must be filed before the conclusion of the first meeting of creditors in the Chapter XIII case unless the court, in application before the expiration of that time and for cause shown, shall grant a reasonable, fixed extension of time. Any claim not properly filed by the creditor within such time shall not be treated as a secured claim for the purposes of voting and distribution in the Chapter XIII case. Notwithstanding the foregoing, the court may permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee or a co-debtor.
This Rule predates the Code and is thus only applicable ". . . to the extent not inconsistent with the (Bankruptcy Code)." Pub.L. 95-598, § 405(d) (1978). The legal issue which the Court must decide, therefore, is to what extent Bankruptcy Rule 13-302(e)(1) is inconsistent with the Bankruptcy Code.
Case law is divided regarding the applicability of Rule 13-302(e)(1) to the Bankruptcy Code. For the view that Bankruptcy Rule 13-302(e)(1) is consistent, see Matter of Brown, 14 B.R. 233 (Bkrtcy.N.D.Ill.1981); Matter of Louie, 10 B.R. 928, 7 B.C.D. 678 (Bkrtcy.E.D.Mich.1981); In Re Foster, 11 U.B.R. 476, 4 C.B.C.2d 763 (Bkrtcy.S.D.Cal. 1981); In Re Remy, 8 B.R. 40, 7 B.C.D. 200, B.L.D. ¶ 67856, 3 C.B.C.2d 698 (Bkrtcy.S.D. Ohio 1980); In Re Hines, 7 B.R. 415, 6 B.C.D. 1356, 3 C.B.C.2d 367 (Bkrtcy.D.S.D. 1980); In Re Webb, 3 B.R. 61, 5 B.C.D. 1379, B.L.D. ¶ 67449 (Bkrtcy.N.D.Cal.1980); In Re Rush, 6 B.C.D. 139, B.L.D. ¶ 67415 (Bkrtcy.S.D.Fla.1980); In Re Pollock, 6 B.C.D. 1280, 2 C.B.C.2d 314 (Bkrtcy.S.D.Fla. 1980); and In Re Price, 5 B.C.D. 1115, B.L.D. ¶ 67287 (Bkrtcy.N.D.Cal.1979). For the view that Bankruptcy Rule 13-302(e)(1) is inconsistent, and therefore inapplicable to the Code, see, In Re Musgrove, 4 B.R. 322, 6 B.C.D. 402, 2 C.B.C.2d 238 (Bkrtcy.M.D.Fla. 1980); and In Re Busman, 5 B.R. 332, 6 B.C.D. 683 (Bkrtcy.E.D.N.Y.1980).
In the case at bar, the Trustee contends that the Code is silent regarding deadlines for the filing of proofs of claims, and that Bankruptcy Rule 13-302(e)(1) merely fills this void in a manner consistent with Code objectives. The Trustee points out that a cutoff date for the filing of secured claims prior to the plan confirmation hearing is implicitly necessary to enable determination of the valuation of secured collateral, and of the corresponding amount available for distribution to unsecured creditors. The Trustee also argues that an early cutoff date for the filing of secured claims is necessary to prevent the "administrative nightmare" of individually processing secured claims which straggle in "late." The Trustee points out, for example, that the "untimely" submission of secured claims requires recomputation of the excess available for unsecured creditors to enable the Court to determine whether unsecured claims will be paid as required by 11 U.S.C. § 1325(a)(4), (i.e. an amount not less than would have been received had the debtor "liquidated" under 11 U.S.C. Chapter 7). In this context, the Trustee also adds that Court policy should resist the "late" filing of secured claims which may profoundly affect the viability of plans already confirmed by the Court.
In response, creditor contends that Bankruptcy Rule 13-302(e)(1) is inconsistent with the Bankruptcy Code, and therefore ". . . should not be regarded as binding upon the court." Creditor, citing Musgrove, supra, and Busman, supra, argues that the policy reasons underlying Rule 13-302(e)(1) are no longer relevant under the Code. In particular, Creditor points out that a principal concern of Rule 13-302(e)(1) was the early compilation of a list of secured creditors for voting purposes, and that creditors no longer "vote" for a wage-earner plan under the Bankruptcy Code. Creditor apparently also inverts the Trustee's basic argument and presumes that Rule 13-302(e)(1) is facially inconsistent with the Code because the Rule provides for the treatment of claims in a manner not required by the Code.
Bankruptcy Rule 13-302(e)(1) was enacted to enable the identification of all of the secured creditors early in a bankruptcy proceeding. Under the Bankruptcy Act, as was interpreted in the Sixth Circuit, secured creditors possessed "life and death" control over a bankrupt's Chapter XIII plan. §§ 651 and 652 of the Bankruptcy Act of 1898; In Re Worley, CCH Bankr.L. Rep. ¶ 64283 (E.D.Mich.1970), aff'd sub nom. Worley v. Budget Credit Union, CCH Bankr.L.Rep. ¶ 64285 (6th Cir. 1971), cert. denied, 406 U.S. 907, 92 S.Ct. 1613, 31 L.Ed.2d 817 (1972); In Re Pappas, 216 F.Supp. 819 (S.D.Ohio 1962). Under the Act, any secured creditor dealt with by a Chapter XIII plan filed in this Court had to accept the plan in writing before the Court could confirm the plan. In Re Pappas, supra, at 882. As a practical matter, the bankrupt was therefore required to deal with any rejecting secured creditor outside of his plan, or else the plan could not be confirmed by the Court. It was therefore imperative under the Act that all secured creditors be required to file early in the proceeding in order to permit efficient processing of Chapter XIII plans. This concern regarding secured creditors "veto" power over a Chapter XIII plan is no longer relevant to 11 U.S.C. Chapter 13 plans. 11 U.S.C. § 1325(a)(5).
The Court is of the opinion, however, that Bankruptcy Rule 13-302(e)(1) is not inconsistent with the Bankruptcy Code and, therefore, is applicable on the facts instanter. Bankruptcy Rule 13-302(e)(1) is a procedural rule which does not alter the substantive rights of the parties. As such, Bankruptcy Rule 13-302(e)(1) possesses continued vitality under the Code. It is essential for Court determination of plan confirmability under 11 U.S.C. § 1325(a) that secured claims be filed prior to the confirmed hearing. Most importantly, this is necessary so that the Court can make the required findings regarding the allowability of secured claims, and the excess available to unsecured creditors. See In Re Remy, supra, at 41. Although Rule 13-302(e)(1) selects a date relatively early in the bankruptcy proceeding, ...
To continue reading
Request your trial