The Saga Continues – What Happens When a Secured Creditor Fails to File a Proof of Claim in a Reorganization?

Recently, Judge Mary Ann Whipple, sitting in the United States Bankruptcy Court for the Northern District of Ohio, issued an opinion regarding the failure of a secured creditor to timely file a Proof of Claim in a Chapter 13.

Judge Whipple, in In re Dumbuya, ruled that the creditor’s failure to timely file a Proof of Claim bound the creditor to the terms of the Debtors’ Plan and the protective Proof of Claim that was filed by the Debtors. In Dumbuya, the creditor filed a Claim way, repeat, way, late, long after the bar deadline and long after an additional deadline given to the creditor by Judge Whipple. The Court, quoting In re Pajian, 785 F.3d at 1164-65:

Requiring all creditors to file claims by the same date allows the debtor to craft and finalize a Chapter 13 plan without the concern that other creditors might swoop in at the last minute and upend a carefully constructed repayment schedule. If we held otherwise, secured creditors could wreak havoc on the ability of the debtor and the bankruptcy court to assemble and approve an effective plan. Each tardy filing rom a secured creditor would likely require the debtor to file a modified plan, which would have to be served on all interested parties and considered by the court. All this would often lead to disruptive delays in plan confirmation hearings and would ultimately hinder the bankruptcy court’s ability to manage its docket.

Dumbuya, Pajian and other cases, such as Matteson v. Bank of America, NA, 535 B.R. 156 (B.A.P. 6th Cir. 2015), all clearly stand for the proposition that secured creditors in Chapter 13 have got to follow the rules, file claims or suffer the consequences. Chapter 13 must remain efficient, equitable and, as the Court pointed out, should not be “disrupted” by creditors not filing timely claims.

Categories: Reorganization

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