All lawyers and bankruptcy professionals know that it is generally best to file a proof of claim on time in a bankruptcy case in order to avoid the need to litigate the many issues involved in the late filing of a claim. Excusable neglect, adequate notice and "informal" claims are not easily proven and frequently involve subjective determinations, and litigation of any kind generally adds more expense to the case.

The Ninth Circuit Bankruptcy Appellate Panel's (BAP) recent decision in In re Edelman, 237 B.R. 146 (Bankr. 9th Cir., 1999), is illustrative of some of the pitfalls that can be encountered as a result of a late-filed claim. While at first the result may seem rather harsh considering the facts of the case, the opinion explains a not-often-considered distinction in the rules governing the filing of claims in cases under chapter 7 and those under chapter 11.

The Edelman Case

On Jan. 17, 1994 (one day before the last day to file proofs of claim in the chapter 7 case of Jack Edelman²), at 4:31 a.m. PST, the Northridge Earthquake (6.7 magnitude on the Richter Scale) struck 20 miles northwest of Los Angeles. The next morning, counsel for a creditor attempted to enter his office building, but was not allowed into the building due to damage caused by the earthquake and tests that were being conducted to determine the extent of the damage. Counsel was unable to enter the building until Jan. 24, 1994. On that same day, counsel filed a proof of claim on behalf of his client in the debtor's chapter 7 case asserting an unsecured, non-priority claim of $127,944.

The trustee later filed an objection to the claim on the grounds that it was filed six days late. The creditor took the position that the late-filed claim should be allowed because an "Act of God" had prevented timely filing, and that alternatively, since its counsel had communicated with the trustee by telephone during the chapter 11 case, including communication regarding the state court action upon which the claim was based, this communication constituted an informal claim. The bankruptcy court sustained the objection, holding that neither Rule 3002(c) of the Federal Rules of Bankruptcy Procedure nor case law provided the court with the discretion to extend the bar date.

The BAP affirmed the bankruptcy court's decision, agreeing that in a chapter 7 case, the bankruptcy court has no discretion to extend the bar date, and holding that the ground of excusable neglect is only available in a chapter 11 case. In a rather interesting comment, the BAP held that counsel had not established that he was unable to file the claim on Jan. 18, 1994 because the clerk's office was closed or inaccessible because of the earthquake, only that he could not enter his office. Further, the BAP concluded that telephone calls to the trustee do not constitute an "informal" proof of claim. The BAP's examination of applicable law explains the result.

Allowance of Claims

The allowance of claims is generally governed by 11 U.S.C. §502(a), which states that a claim filed under §501 is deemed allowed unless there is an objection.³ Section 502(b) of the Bankruptcy Code⁴ sets forth the grounds for the disallowance of claims, including the requirement in §502(b)(9) that claims must be timely filed. The rules governing the time for the filing of claims in cases under chapters 7, 12 and 13 are set forth in Rule 3002(c), which states that "a proof of claim is timely filed if it is filed not later than 90 days after the first date set for the meeting of creditors called under §341(a) of the Code..." Rule 3002(c).⁵

In a chapter 11 (or a chapter 9) case, the filing of proofs of claim is governed by Rule 3003(c)(3), which provides for the bankruptcy court to fix the time within which proofs of claim or interest may be filed.

Exceptions to the Rules Governing the Timely Filing of Claims

Rule 3002(c) (applicable in cases under chapters 7, 12 and 13) sets forth five exceptions to the rule that proofs of claim be filed within 90 days of the first date set for the §341(a) meeting of creditors. They are:

• Governmental units may file within 180 days after the date of the order for relief and such period may be extended for cause.
• The court may extend the time for filing by infants or incompetent persons or their representatives if such an extension serves the interest of justice and will not unduly delay the administration of the case.
• An unsecured claim arising as a result of a judgment in favor of the bankruptcy estate for money or property, or denying or avoiding an interest in property, such as a judgment requiring a party to turn over property to the trustee or the avoidance of a security interest that results in the losing party having an unsecured claim, may be filed within 30 days after the judgment becomes final.
• A claim arising from the rejection of an executory contract or unexpired lease of the bankruptcy debtor may be filed within such time as the court may direct.
• If the clerk's office has mailed a notice of insufficient assets to pay a dividend to creditors, and subsequently mails a notice of a possible dividend, claims may be filed within 90 days after the mailing of such notice.

Rule 3003(c)(3), which sets forth the rules governing the time for filing claims in chapter 11 cases, incorporates the exceptions found in Rule 3002(c)(2), (3) and (4) but generally provides that the time may be extended "for cause shown." In addition to these exceptions, the U.S. Supreme Court has held that the rather broad justification of "excusable neglect" found in Rule 9006 may be grounds for the extension of the time limit and allowance of a late-filed claim. Pioneer Investment Services Co. v. Brunswick Associates, 507 U.S. 380, 389, 113 S.Ct. 1489, 1495, 123 L.Ed.2d 74 (1993).

In the Edelman case, the creditor argued that enlargement of the time to file proofs of claim was authorized by Rule 9006. However, citing Zidell Inc. v. Forsch (In re Coastal Alaska Lines Inc.), 920 F.2d 1428 (9th Cir. 1990), the BAP concluded that the language of Rule 9006(b)(3) does not permit the expansion of the time limits contained in Rule 3002(c). Rule 9006(b)(3) states, under the heading "Enlargement Limited," as follows:

The court may enlarge the time for taking action under Rules

1006(b)(2), 1017(e), 3002(c), 4003(b), 4003(b), 4004(a), 4007(c), 8002 and 9033 only to the extent and under the conditions stated in those rules.

Bankruptcy Rule 9006(b)(3) (emphasis added). Thus, since there are only five exceptions set forth in Rule 3002(c), the bankruptcy court is without authority to enlarge the time for filing under any other conditions, including earthquakes.

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...while courts may be very generous in allowing late-filed claims or extending the bar date in chapter 11 cases, they lack the discretion to do so in chapter 7 and 13 cases...

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The creditor then argued that the bankruptcy court's equitable powers under §105(a) permitted the allowance of the claim. The BAP determined that the Ninth Circuit in Coastal Alaska had already considered this issue and concluded that, based upon the express language of Rule 9006(b)(3), the equitable powers granted to the bankruptcy court by §105 do not accord discretion to enlarge the time for filing a proof of claim unless one of the situations listed in Rule 3002(c) exists. Edelman at 151, citing Coastal Alaska at 1432-33.

Chapter 11—A More Generous Standard

Mr. Edelman's creditor next cited Pioneer as a basis for enlargement of the time to file claims. The BAP correctly pointed out that while the Supreme Court in Pioneer had recognized the concept of prevention by Act of God, it had done so in the context of determining what constituted excusable neglect. Further, the Supreme Court in Pioneer expressly stated that "The 'excusable neglect' standard of Rule 9006(b)(1) governs the late filing of proofs of claim in chapter 11 cases, but not Chapter 7 cases." Pioneer, 507 U.S. at 388 (emphasis added), explaining, in Footnote 4,

Subsections (b)(2) and (b)(3) of Rule 9006 enumerate those time requirements excluded from the operation of the "excusable neglect" standard. One of the time requirements listed as excepted in Rule 9006(b)(3) is that governing the filing of proofs of claim in chapter 7 cases. Such filings are governed exclusively by Rule 3002(c) [citations omitted]. By contrast, Rule 9006(b) does not make a similar exception for Rule 3003(c), which, as noted earlier, establishes the time requirements for proofs of claim in chapter 11 cases. Consequently, Rule 9006(b)(1) must be construed to govern the permissibility of late filings in chapter 11 bankruptcies.

The Supreme Court reasoned that the difference between the rules was justified because of the differing policies of the two chapters; chapter 11 provides for reorganization with the aim of rehabilitating the debtor and avoiding forfeitures by creditors, whereas the aim of chapter 7 liquidation is the prompt closure and distribution of the debtor's estate. Pioneer, 507 U.S. at 388. Consequently, Pioneer did not apply.

Informal Claim

The creditor's final argument was that he had filed an informal claim during the course of the chapter 11 case, based on his numerous conversations with the U.S. Trustee's office. The BAP held that, based upon well-established law in the Ninth Circuit regarding informal proofs of claim, such conversations did not constitute an informal proof of claim. The Ninth Circuit has held that, "For a document to constitute an informal proof of claim, it must state an explicit demand showing the nature and amount of the claim against the estate, and evidence an intent to hold the debtor liable." Anderson-Walker Industries Inc. v. Lafayette Metals Inc. (In re Anderson-Walker Industries Inc.), 798 F.2d 1285 (9th Cir. 1986) (letter from a creditor to the chapter 7 trustee's counsel prior to the bar date requesting payment from the estate at the time of distribution held to constitute informal proof of claim). See, also, County of Napa v. Franciscan Vineyards Inc. (In re Franciscan Vineyards), 597 F.2d 181, 182 (9th Cir. 1979) (per curiam), cert. denied, 445 U.S. 915, 100 S.Ct. 1274, 63 L.3d.2d 598 (1980) (county sent letter to trustee prior to bar date enclosing tax bills and requesting payment).

Thus, the BAP said, while a creditor (in the Ninth Circuit) need not show that its informal proof of claim was filed with the bankruptcy court, the creditor must establish (1) presentment in writing, (2) within the time for filing of claims, (3) by or on behalf of the creditor, (4) bringing it to the attention of the court and (5) the nature and amount of a claim asserted against the estate. Edelman at 154-5. See, also, Wright v. Holm (In re Holm), 931 F.2d 620 (9th Cir. 1991).

As liberal as the Ninth Circuit is regarding informal claims, the BAP in Edelman noted that the creditor did not contend that any document concerning the claim was ever delivered to anyone connected to the chapter 11 or chapter 7 case, and rejected the creditor's argument that its counsel's numerous telephone calls to the trustee while the case was a chapter 11 case were sufficient to constitute an informal proof of claim. See, also, In re Vocola, 234 B.R. 239 (Bankr. D. R.I. 1999).

However, other jurisdictions have held that an informal claim must have been filed with the court such that merely a letter written to a representative of the estate such as the trustee or debtor, as in Anderson-Walker and Franciscan Vineyards, would not suffice. In these cases, a timely written assertion or pleading, sufficient to apprise the court of the existence, nature and amount of the claim as well as evidence of an intent on the part of the claimant to hold the debtor liable for that claim, is required. See In re Benjamin Coal Co., 978 F.2d 823 (3rd Cir. 1992). Condominium Assoc. Inc. v. South Atl. Fin. Corp. (In re South Atl. Fin. Corp.), 767 F.2d 814, 819 (11th Cir. 1995), cert. denied, 475 U.S. 1015, 106 S.Ct. 1197 89 L.Ed. 311 (1986); In re Penn State Clothing Corp., 205 B.R. 62 64-65 (Bankr. E.D. Pa. 1997); In re L. Meyer & Son Seafood Corp., 188 B.R. 315, 319-320. In addition, the writing must have been filed with the court prior to the bar date. In re Cole, 189 B.R. 40, 51 (Bankr. S.D.N.Y. 1995).⁶

Writings in various forms have been determined to constitute informal proofs of claim. See In re L. Meyer & Son Seafood Corp., 188 B.R. 315 (Bankr. S.D. Fla. 1995) (claims were filed with an assignee for the benefit of creditors who provided them to the trustee in bankruptcy after an involuntary petition was filed against the debtor); In re Penn State Clothing Corp., 205 B.R. 62 (Bankr. E.D. Pa. 1997) (fee applications filed by professionals employed in the chapter 11 case were viewed as timely filed claims upon conversion to a chapter 7 case); In re Graham Mortgage Investors, 15 B.R. 284 (Bankr. M.D. Fla. 1986) (motion for relief from stay provided sufficient information to be an informal proof of claim); Wright v. Holm (In re Holm), 931 F.2d 620 (9th Cir. 1991) (disclosure statement filed in chapter 11 case met requirements for an informal proof of claim.)

Impossibility

Interestingly, the BAP left open the issue of whether the bankruptcy court has the discretion to enlarge the time for filing claims in chapter 7 cases due to "impossibility." The Ninth Circuit has not addressed this issue yet. The BAP stated, "One can certainly conceive of extraordinarily compelling circumstances where, due to death, hospitalization for serious illness such as a coma, war, natural disaster, or the like, it would be truly impossible for a creditor to file its claim on a timely basis." Edelman at 152, (emphasis added).

However, the BAP continued, Mr. Edelman's creditor had not demonstrated that it had been impossible to file the claim due to the earthquake. Counsel had not contended that either he or his client had been injured or disabled, or that the court had been closed or inaccessible. Although the creditor's counsel had been unable to enter his office building, counsel had not explained how or why he had been prevented from going to the bankruptcy court and filing a "piece of paper" indicating the claim. Therefore, the "creditor has not demonstrated that the disruption caused by the earthquake did in fact prevent him from filing a claim by Jan. 18 or during the 89 preceding days." Edelman at 152.⁷

Conclusion

In summary, the time for filing proofs of claim in cases under chapters 7, 12 and 13 is governed by Rule 3002(c); in chapter 9 and 11 cases, Rule 3003(c) establishes those time limits. Not only does Rule 3003(c)(3) specifically allow the bankruptcy court to extend the time "for cause shown," but Rule 9006(b) permits the court to enlarge most of the time limits provided for in the Bankruptcy Rules, but not the time limit established by Rule 3002(c). That rule is subject to Rule 9006(b)(3), which limits the enlargement of the Rules specified therein "only to the extent and under the conditions stated in those rules." Most of the courts that have considered this distinction have found that while courts may be very generous in allowing late-filed claims or extending the bar date in chapter 11 cases, they lack the discretion to do so in chapter 7 and 13 cases, even where circumstances might seem to justify extending the time.

The lesson to be learned—aside from the obvious ones of not waiting until the last day to file a proof of claim and keeping an up-to-date calendar with you at all times—is that an Act of God may not be considered excusable neglect justifying tardiness in filing; however, if it makes timeliness truly impossible, it may justify an extension of time.

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Footnotes

¹ Ms. Weil is of counsel to Andrews & Kurth L.L.P. in its Los Angeles office. Mr. Horowitz is a shareholder in the Los Angeles firm of Clark & Trevethick P.C. Return to article

² The Edelman case originally had been filed as a chapter 11 case on Oct. 5, 1992, and was converted to a chapter 7 case on July 29, 1993. Return to article

³ In a chapter 11 case, §1111(a) deems filed any claim appearing in the schedules filed by the debtor except a claim scheduled as disputed, contingent or unliquidated. Return to article

⁴ References to "Section ___" are references to the Bankruptcy Code, 11 U.S.C. §101 et seq. Return to article

⁵ Hereafter, references to the Federal Rules of Bankruptcy Procedure shall be designated as "Rule ____" or "Bankruptcy Rule ____." Return to article

⁶ Once the court makes a determination that a timely "informal" claim has been filed, a properly filed formal proof of claim is to be treated as an amended claim to the informal claim. Roberts Farms Inc. v. Bultman (In re Roberts Farms Inc.), 980 F.2d 1248 (9th Cir. 1992); Pizza of Hawaii Inc. v. Shakey's Inc. (In re Pizza of Hawaii Inc.), 761 F.2d 1374 (9th Cir. 1985); In re Gourley, 235 B.R. 626 (Bankr. W.D. Tenn. 1999). Return to article

⁷ The authors, who are married, live approximately three miles from the epicenter of the Northridge Earthquake and have some personal knowledge of the disruption it caused. However, the Edelman opinion states no facts, such as the location of the office building or whether the court had been closed, that would allow the reader to ascertain how much interference with the attorney's ability to file a claim had actually been caused by the earthquake. Return to article

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