On an issue where the courts are divided, Bankruptcy Judge Michelle M. Harner of Baltimore ruled that a creditor without notice of a chapter 13 case was not permitted to file a late claim, nor was the creditor entitled to a modification of the stay.
Tomorrow, we will report a decision where Bankruptcy Judge Elizabeth W. Brown of Denver reached the opposite result on essentially the same facts. She found discretion to allow the late filing of a claim in a chapter 13 case when the creditor was not listed on the creditor matrix.
The Facts in Judge Harner’s Case
The debtor filed the list of creditors on time but omitted one creditor. Not knowing that the debtor-defendant had filed a chapter 13 petition, the creditor proceeded with a lawsuit in state court. The creditor did not learn about the bankruptcy until attempting to garnish the debtor’s wages.
The creditor sought authority to file a late claim and to modify the automatic stay. Judge Harner denied both motions in a pair of opinions on October 4. Judge Harner was a law professor at the University of Maryland before ascending to the bench in 2017.
Permission to File a Late Claim
The case turned on the rule applicable to late claims in chapter 13.
Generally, Bankruptcy Rule 9006(b)(1) permits an extension after a deadline on the showing of excusable neglect. But when the question deals with filing claims, Rule 9006(b)(3) permits an extension of time only for the reasons given in Bankruptcy Rule 3002(c).
Rule 3002(c) applies only in chapters 7, 12 and 13. In chapter 11, Rule 9006(b) allows late claims on a showing of excusable neglect.
The rule for extensions of time for filing late claims in chapters 7, 12 and 13 is not so liberal. Rule 3002(c) lists seven exceptions to the claim-filing deadline. The rule does not use the word “including,” so the list is exclusive.
For the case before Judge Harner, the most nearly applicable rule was found in subsection (c)(6), which allows the filing of a late claim “if the court finds that: (A) the . . . debtor failed to timely file the list of creditors . . . required by Rule 1007(a); or (B) the notice was insufficient under the circumstances to give the creditor a reasonable time to file a proof of claim, and the notice was mailed to the creditor at a foreign address.”
With regard to Rule 3002(c)(6)(A), Judge Harner said that the rule was amended in 2017 to require “both insufficient notice and an untimely filing of the Creditor List . . . .” (Emphasis in original.)
More particularly, Judge Harner said that eligibility for an extension under subsection (c)(6)(A) requires the showing of two elements: “(i) insufficient notice caused by (ii) the debtor’s failure ‘to timely file the list of creditors . . . .” (Emphasis in original.) “A creditor must prove both elements to receive an extension of the claims bar date,” she said.
If the creditor list is timely filed, Judge Harner held that “Bankruptcy Rule 3002(c)(6) does not permit enlarging the time for a moving creditor to file a proof of claim.” Although the drafters of the rule “could have intended broader coverage,” she said that she was “uncomfortable making such inferences when the language of the rule is unambiguous.”
Because the debtor had filed schedules on time, Judge Harner held that “the plain language of the Bankruptcy Rules precludes any enlargement of the claims bar date under the facts of this matter.” Nonetheless, Judge Harner said the creditor “is not without a remedy,” because the claim will not be discharged.
Judge Harner said the creditor could pursue its claim in state court on the completion of the debtor’s plan or on an earlier termination of the stay.
The Motion to Modify the Stay
The creditor had also sought a modification of the stay, presumably to allow enforcement of the state court judgment. Judge Harner also denied the stay motion, but without prejudice.
Judge Harner said she could not “identify any immediate need for relief from stay or prejudice to the [creditor] from a continued stay of the [creditor’s] state court action.” She noted that Section 108 tolls “most statutes of limitations . . . with respect to commencing or continuing an action” based on the creditor’s prepetition claims.
Although the creditor’s rights are preserved, Judge Harner said that other creditors “could be significantly prejudiced in that the Debtor is required to commit time and resources to the [creditor’s] state court litigation.”
On balance, Judge Harner found “no cause to lift or modify the stay.”
On an issue where the courts are divided, Bankruptcy Judge Michelle M. Harner of Baltimore ruled that a creditor without notice of a chapter 13 case was not permitted to file a late claim, nor was the creditor entitled to a modification of the stay.
Tomorrow, we will report a decision where Bankruptcy Judge Elizabeth W. Brown of Denver reached the opposite result on essentially the same facts. She found discretion to allow the late filing of a claim in a chapter 13 case when the creditor was not listed on the creditor matrix.
The debtor filed the list of creditors on time but omitted one creditor. Not knowing that the debtor-defendant had filed a chapter 13 petition, the creditor proceeded with a lawsuit in state court. The creditor did not learn about the bankruptcy until attempting to garnish the debtor’s wages.
The creditor sought authority to file a late claim and to modify the automatic stay. Judge Harner denied both motions in a pair of opinions on October 4. Judge Harner was a law professor at the University of Maryland before ascending to the bench in 2017.