An issue receiving much recent attention in the courts and among commentators is the nature and extent of the documentation required to be attached to proofs of unsecured claims based on credit card debt. Several courts have recently considered the issue in decisions reflecting mixed results. This subject has also been the focus of several recent articles in the ABI Journal. See, e.g., S. Andrew Jurs, Unsecured Claims and Rule 3001: How Much “Writing” or Supporting Information is Required?, ABI Journal, June 2004, p. 10; John Rao, Debt Buyers Rewriting of Rule 3001: Taking the “Proof” Out of the Claims Process, ABI Journal, July/August 2004, p. 16. This article briefly reviews the key holdings in several recent opinions. Those interested in a more thorough discussion should attend the meeting of the Consumer Bankruptcy Committee at the ABI’s Annual Spring Meeting which will focus exclusively on this topic.
Pursuant to §502(a), a proof of claim filed by a creditor in a bankruptcy case is deemed allowed unless objected to. The substantive grounds for disallowance of claims are specified in §502(b). Rule 3001 of the Federal Rules of Bankruptcy Procedure governs the form, content and effect of filing of a proof of claim. Among other things, the rule requires that a claim conform substantially to the relevant official form. Rule 3001(a). If the claim is based on a writing, the original or a duplicate must be attached. Rule 3001(c). Official Form 10 provides that if the documentation is voluminous, a summary may be provided. The form further provides that if the claim includes interest or other charges, an itemization of the charges must be supplied. In the context of claims based on the use of credit cards, these requirements raise several issues. If credit card debts are based on a writing, what is the relevant writing? What kind of documentation is required to itemize the involved charges? What is the effect of a failure to provide the required documentation? Many claims of this type are asserted not by the original lender but by an assignee or transferee which has purchased the claim. In addition to raising questions about the assignment and standing to file the proof of claim, the transfer often complicates the availability of documentation to establish the claim. One final dynamic often present in these cases is that debtors objecting to the claims have often scheduled the same claims in amounts similar to those shown in the claims with no indication that they are disputed.
In what was apparently the first of a recent spate of opinions addressing these issues, the Bankruptcy Court for the Western District of Washington in In re Henry, 311 B.R. 813 (Bankr. W.D. Wash. 2004), sustained objections to several claims based on credit card debt and struck the claims with leave to amend. In Henry, the creditors had filed claims with either no documentation or a one-page attachment containing the name of the debtor, the account number and the total amount of the debt. Debtors objected asking that the claims be stricken based on insufficient documentation. The court began its analysis by reviewing the relevant legal framework with regard to objections to claims. First, according to Rule 3001(f), a claim filed in conformity to the bankruptcy rules constitutes prima facie evidence of the validity and amount of the claim. The burden then shifts to the objector to produce evidence sufficient to negate the prima facie validity of the claim. Henry, 311 B.R. at 817. Rule 3001(c) requires that, for claims based upon a writing, the original or a duplicate be filed with the claim. The court noted that other courts considering the question had determined that failure to attach a required writing does not of itself support disallowance of the claim, but deprives the claim of entitlement to prima facie validity. Henry, 311 B.R. at 817. The court concluded that a claim based upon a credit card debt is based a writing—the credit card agreement. Henry, 311 B.R. at 817. Accordingly, the claimant must submit a copy of the agreement or a promissory note. In addition, if the agreement authorizes the creditor to charge interest and other fees and the claim contains such elements, the claimant must offer an itemization or breakdown of these charges. In this context, that means copies of account statements. Henry, 311 B.R. at 817.
Applying these principles to the situation before it, the court held that a creditor must, at a minimum file a sufficient number of monthly statements to permit a determination as to how the total amount claimed has been calculated and a copy of the agreement authorizing any charges and fees included in the claim. Absent that, the creditor’s claim would be disallowed. Henry, 311 B.R. at 818.
These issues were addressed again in In re Hughes, 313 B.R. 205 (Bankr. E.D. Mich. 2004), involving claims filed by an agent or assignee of the original creditor. They were accompanied by an attachment that included identifying information on the debtor, the account number and the claim amount. The debtor objected to the claim on the ground that the information filed with the claim was not sufficient to show the claimant’s entitlement to assert the claim. In response, the claimant filed documents evidencing the assignment of the claim from the original creditor. The court held that while the claims as originally filed did not invoke the presumption of prima facie validity, with the additional documentation filed on amendment, they did so. Hughes, 313 B.R. at 210–211.
Debtor’s objection had also asserted that the claims were otherwise insufficiently documented. The court noted the requirement that a claim based on a writing required production of the writing and held that a credit card claim is one based on a writing. Hughes, 313 B.R. at 210. The claims included references to statements which had been provided to the debtor prepetition and a summary of the claims with identifying information on the debtor, the account number, the account balance and an explanation as to the source of the information. The court held this to be sufficient to establish the validity of the claims, noting that the debtor did not identify a dispute as to liability and had scheduled the debts in amounts similar to those included in the claims. Hughes, 313 B.R. at 211. Underlying its ruling was the court’s observation that the purpose of the rules is to secure the just, speedy and inexpensive determination of each proceeding. That purpose is satisfied in the proof of claim context when the claimant provides enough information to permit the debtor to identify the creditor and match the filed claim with the amount scheduled. The court felt that requiring an assignee to provide voluminous account information of the kind apparently sought by the debtor would impose an unnecessary burden on the claimant. Hughes, 313 B.R. at 212.
A slightly different approach is reflected in In re Cluff, 313 B.R. 323 (Bankr. D. Utah 2004), in which the court also overruled the debtors’ objections to claims filed based on credit card debt. The debtors had objected that the claims were not properly documented because only a summary was provided and not the writing on which the claims were based. Debtors had identified no dispute as to liability or amount and had originally listed the claim as undisputed. After the creditor made this observation in its response to the objection, debtors amended their schedules to designate the claims as disputed, a tactic which the court questioned. After observing the substantive rules set forth in §502(b) and the procedural requirements of Rule 3001 and their effect on evidentiary requirements and the burden of proof, the court held that Rule 3001 does not provide an independent basis for objecting to claims and the grounds set forth in §502(b) are the exclusive justifications for disallowance of a proof of claim. Since it is not identified in §502(b), the absence of sufficient documentation is not grounds for disallowance of the claim. Cluff, 313 B.R. at 331. The effect of such insufficiency is to deprive the claim of its prima facie validity. Cluff, 313 B.R. at 337; See also In re Kemmer, 315 B.R. 706, 713 (Bankr. E.D. Tenn. 2004). Even in the absence of the presumption, although the claimant has the burden of producing evidence to establish the validity of the claim, once some evidence has been presented, the objector must then respond. Cluff, 313 B.R. at 337–338; Kemmer, 315 B.R. at 713. The objector must assert in writing some legal or factual basis demonstrating that the debtor should not have to pay the claim. If the debtor fails to do so, the claim should be allowed. Cluff, 313 B.R. at 338.
As to the requirement for attachment of a writing, the court concluded, as had the other courts considering the question, that a claim based on a credit card debt is based on a writing. The Cluff court, however, took a closer look at the question of what writings establish claims based on the usage of credit cards and determined that the writing is not the underlying agreement which does not itself create the debt, but merely establishes the line of credit and the terms of its usage. The documents generated when the credit card is actually used constitute the writings on which the claim is based. Cluff, 313 B.R. at 334; Kemmer, 315 B.R. at 714. The court, concluded as had the court in Hughes, that requiring the agreement and all such receipts would be unduly burdensome. A summary of those documents is therefore sufficient, a result the court considered to be consistent with the instruction in Official Form 10 as well as with Federal Rule of Evidence 1006, which authorizes the use of summaries in lieu of voluminous documents. Cluff, 313 B.R. at 335; Kemmer, 315 B.R. at 715. According to the court, that summary should contain the amount of the claim, the debtor’s name and account number, appear to be a business record and if the claim includes charges like interest, late fees or the like, include a breakdown of such charges. Cluff, 313 B.R. at 335; Kemmer, 315 B.R. at 715. A monthly account statement of the kind routinely sent to the debtor satisfies this requirement. In addition, the underlying documents should be made available on request.
Applying these principles to the claims before it, the court held that the objections did not rebut the presumption for those claims that were entitled to that benefit. The claims that did not itemize charges were not entitled to the presumption, but even as to those claims, because the debtor did not effectively rebut the evidence that was provided to establish the validity of the claims, the objections were overruled.
The only appellate level court to consider these questions is the Eighth Circuit Bankruptcy Appellate Panel in Phyllis Michele Dove–Nation v. eCast Settlement Corporation, 318 B.R. 147 (8th Cir. B.A.P. 2004), an appeal of the bankruptcy court’s denial of objections to claims filed on credit card debt. The debts in question were listed in the schedules of assets and liabilities and not designated as disputed. The scheduled amounts were virtually identical to the amounts set forth in the claims to which the debtor objected. Each claim was accompanied by a one page summary including identifying information on the debtor and the account, the balance and a statement of the source and verification of the data upon which the claim was based. An additional paragraph noted that prepetition statements setting forth the amounts of which the claim was comprised had been mailed to the debtor prepetition and would be made available upon request. The debtor objected, alleging that the documents attached to the claim did not satisfy the requirements of Rule 3001 and in particular that the writing upon which the claims were based was not attached. As had occurred in several other cases, after the exchange of objection and response, the debtor amended her schedules to designate the claims as disputed. In addition, the creditors filed amended claims, in one case including several months of account statements.
The court held that sustaining the objection would exalt form over substance and would have the effect of elevating the provisions of Bankruptcy Rule 3001 over the language of the Bankruptcy Code in contravention of 28 U.S.C. §2075. Dove–Nation, 318 B.R. at 151–52. The court felt that, even considering just the requirements of the rule upon which the objection was predicated, it could not be sustained. The rule is not as rigid as the debtor suggested, providing for example that the claim form used need only conform substantially, not strictly, to the official form. Likewise, exceptions exist to the requirement of attachment of a writing, such as the option to provide a summary if the documents are voluminous. The court held that the claimants had substantially complied, the claims were in amounts almost exactly as scheduled by the debtor and the debtor had offered no evidence to dispute the validity or the amount of the claims or establish a basis for disallowance under §502(b). Id. As did the court in Cluff, the Bankruptcy Appellate Panel observed that even if the claim is not entitled to prima facie validity, the claimants had offered some evidence of the validity of the claims, which the debtor did not attempt to controvert. Finally, the court observed that the debtor’s scheduling of the claims was itself some evidence of their validity and amount. See also, In re Mazzoni, 318 B.R. 576, 578–79 (Bankr. D. Kan. 2004) (failure to attach writing did not invalidate claim, but only deprives claim of prima facie validity; claimant satisfied initial burden by supplying creditor name, account number and amount of claim).
There appears to be no disagreement among these courts as to most of the fundamental legal principles upon which these claims objections are based, but some difference of opinion as to how some of the requirements must be satisfied. While a creditor has the burden of establishing an entitlement to payment, a claim filed in conformity with the bankruptcy rules is entitled to a presumption of prima facie validity. Once that presumption is invoked, the objector then has the burden of coming forward with evidence for a legal argument to negate some essential element of the claim. The ultimate burden of persuasion, however, remains on the claimant. The rule requires that claims based upon a writing require the production of the writing or a copy. These courts seem to be in agreement that a debt based upon credit card usage is a claim based upon a writing, but differ somewhat as to what writing or writings comprise the basis of the claim. It is clear that if interest and other charges are a part of the claim, some itemization must be supplied, but these courts differ as to the nature and extent of the required itemization. Failure to supply all of the required documentation does not justify disallowance of the claim, but deprives the claim of prima facie validity. Even if a claim is not entitled to the presumption of prima facie validity, if some evidence is offered in support of the claim, the objector must respond to that evidence and may not merely assert in conclusory fashion the invalidity of the claim. The debtor’s scheduling of the claims as undisputed and in amounts virtually identical to those set forth in the claim constitutes at least an evidentiary admission which provides additional evidence of the claim’s validity. This and the absence of any identified dispute as to the validity or amount of the claim has influenced the outcome in some of these cases. Perhaps the only thing that is clear is that absent some amendments to Rule 3001, these issues will continue to be fertile ground for litigation.