Many creditors' attorneys have had that terrible feeling. You start out wondering about the bar date in a particular case. Then, when you find it in the file, your blood turns cold. The bar date is gone and no proof of claim was filed. You know that a late claim is not entitled to share in distributions from the estate. 11 U.S.C. §502(b)(9). You think about who gets called first—your client or your malpractice carrier—because you know that there are very few "happy endings" from this point and you don't have many options left.¹

One option is to request leave to file a late proof of claim. The Supreme Court held that the Bankruptcy Code allows late claims to be filed if there is "excusable neglect" by the creditor's attorney.² However, those motions necessarily read like confessions that should be sent directly to your malpractice carrier. For the motion to be granted, you have to plead and prove your own negligence (that's the neglect part) and hope that it was excusable. Otherwise, you know that motion will be Plaintiff's Exhibit No. 1 in the malpractice action against you. Filing that motion is a difficult decision, and you would rather do almost anything to avoid it. Fortunately, a doctrine exists that might rescue you: an "informal proof of claim."

Informal proofs of claim can come in many different styles and lots of different formats, and can say many different things. Nothing in the Bankruptcy Code recognizes an informal proof of claim; informal proofs of claim are only found in case law. The common elements courts require of informal proofs of claim are (1) a written document (2) that contains a demand for payment from the bankruptcy estate (3) evidencing an intent to hold the debtor liable on the debt and (4) filed with the bankruptcy court. In addition, (5) allowing the claim must be equitable based on the facts of the case.³

Informal proofs of claim can take many forms. For example, In re Nikoloutsos involved an adversary proceeding complaint as an informal proof of claim. An involuntary petition can also be an informal proof of claim since it definitely meets the five-part test.⁴ However, a pending state court action does not qualify as an informal proof of claim.⁵

Once an informal proof of claim has been filed, it is treated just like a "regular" proof of claim, which can be amended, withdrawn and objected to. Its holder is also entitled to vote just like other "deemed allowed" claims, including voting on plans of reorganization and trustee elections.

Since an informal proof of claim is rarely, if ever, docketed on the court's claims docket, claimants should probably consider requesting leave to amend it to both advise the debtor and other parties of the claim itself and tee up the "admendability" issue as early as possible.

The consequences of having an informal proof of claim are still being developed. Filing a "regular" proof of claim has a number of consequences. It supercedes the "deemed allowed claim" amount from the debtor's schedules in a chapter 11 case and is required to receive distributions in chapter 7 cases. A proof of claim also submits the creditor to the bankruptcy court's jurisdiction over the parties' disputes (over the claim and all counterclaims against that creditor). The jurisdictional consent waives any jury trial rights and could jeopardize a request to withdraw the reference to the district court.

These later waivers can be important. For example, the creditor could have received substantial avoidable payments. Assume that, for whatever reason, the creditor makes the tactical decision to avoid the bankruptcy court's exclusive jurisdiction by deliberately not filing a proof of claim. Most creditors understand that not filing a claim means that creditors are giving up the chance to receive a debtor's/trustee's promises (instead of immediate cash). Nevertheless, they file proofs of claim because they are either oblivious to the rule or somehow confident that they will not be adversely affected by it.

The possibility of informal proofs of claim makes filing any document with the bankruptcy court somewhat risky. The risk comes from inadvertently consenting to the bankruptcy court's jurisdiction. A crafty creditor might try to file an innocuous document with the bankruptcy court trying to "keep its options open." If money were to be distributed, the creditor would then assert that an informal claim was filed so it could receive a distribution. If, instead, the trustee wanted to sue the creditor in bankruptcy court, the creditor would then argue against an informal proof of claim. Hopefully, we have not arrived at the point where this would occur, but you may never really know for sure.

As with many things, the doctrine allowing informal proofs of claim has both good and bad things to offer, depending on the facts and your perspective on the case.

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Footnotes

¹ This reminds you of the Southern paraphrase of an old commercial: "When you're down to Schlitz, you're out of beer." Return to article

² Pioneer Investment Services Co. v. Brunswick Assoc. Ltd., 113 S.Ct. 1489 (1993). Return to article

³ In re Nikoloutsos, 199 F.3d 233, 236 (5th Cir. 2000); In re Reliance Equities Inc., 966 F.2d 1338, 1345 (10th Cir. 1992). Return to article

⁴ In re Willard, 240 B.R. 664, 667 (Bankr. D. Conn. 1999). Return to article

⁵ In re Edelman, 237 B.R. 146, 155 (9th Cir. BAP 1999). Return to article