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Untimely Proofs of Claim Filed in a Bankruptcy Action
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Untimely Proofs of Claim Filed in a Bankruptcy Action

August 5, 2013 Banking & Financial Services Industry Legal Blog

Reading Time: 4 minutes

When a debtor files a bankruptcy action, creditors may or may not have the opportunity to file a proof of claim evidencing the amount owed to the creditor on the date the bankruptcy action was filed.  The court sets a deadline for filing the proof of claim, to which all creditors must strictly adhere.  But what if a creditor misses the deadline?  Is all hope lost, or is there a mechanism to still get the claim in and receive a portion of any distribution?  Well, whether an untimely claim is valid or not really turns on notice.

The Bankruptcy Code allows a creditor to file a proof of claim for any debt that arises before the filing date of the bankruptcy petition.  11 U.S.C. § 501.  If a creditor fails to timely file a claim, a third party that secures the creditor or is indebted to the creditor with the debtor, or the trustee or debtor themselves, may file a claim on the creditor’s behalf.  Id.  A timely filed proof of claim is deemed allowed, unless a party in interest (usually the debtor or trustee) objects to the claim.  11 U.S.C. § 502(a).

However, sometimes a debtor may fail to list a creditor on the schedules and the creditor does not receive notice of the bankruptcy action before the claims bar date, or the deadline set by the court for filing a proof of claim.  Courts are clear that untimely claims filed in a Chapter 7 action may be allowed, particularly in cases where a creditor did not receive timely notice of the bankruptcy action.  In re Jensen, 333 B.R. 906, 909 (Bankr. M.D. Fla. 2005).  The same principals apply in Chapter 11 and 13 actions as well, although a previously confirmed plan may alter the relief.  A court may still allow the tardily filed claim, but it will receive distribution in a different manner than if the claim was timely filed.  See below for information on distribution:

(a)        Except as provided in section 510 of this title, property of the estate shall be distributed—

(1)        first, in payment of claims of the kind specified in, and in the order specified in, section 507 of this title, proof of which is timely filed under section 501 of this title or tardily filed on or before the earlier of—

(A)       the date that is 10 days after the mailing to creditors of the summary of the trustee’s final report; or
(B)       the date on which the trustee commences final distribution under this section;

(2)        second, in payment of any allowed unsecured claim, other than a claim of a kind specified in paragraph (1), (3), or (4) of this subsection, proof of which is—

(A)       timely filed under section 501(a) of this title;
(B)       timely filed under section 501(b) or 501(c) of this title; or
(C)       tardily filed under section 501(a) of this title, if—

(i)         the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim under section 501(a) of this title; and
(ii)        proof of such claim is filed in time to permit payment of such claim;

11 U.S.C. § 726(a).  The Bankruptcy Code specifically states that a creditor must not have notice or actual knowledge of the bankruptcy case in order for the claim to be allowed.  If the debtor can show the creditor did have notice and/or actual knowledge of the case, it is likely that an objection to the claim will stand.

As a matter of practice, once a creditor receives notice of the bankruptcy action, a proof of claim should be filed immediately to avoid any possibility of missing the claims bar date.  Failure to timely file the claim could result in the court disallowing the claim and the creditor receiving no distribution from the estate.

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