- Category: Judge Karlin
- Published on 08 June 2011
- Written by Judge Karlin
SIGNED this 19 day of May, 2011.
JANICE MILLER KARLIN
UNITED STATES BANKRUPTCY JUDGE
OPINION DESIGNATED FOR ONLINE PUBLICATION
BUT NOT PRINT PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
In re: )
MICHAEL JOHN SPRESSER and ) Case No. 08-41067-12
LINDA LOUISE SPRESSER, )
MEMORANDUM OPINION AND ORDER GRANTING
TRUSTEE’S MOTION TO DISBURSE UNSECURED FUNDS
This matter is before the Court on the Trustee’s Motion to Disburse Unsecured Funds.1
Creditor First State Bank (FSB) has objected to this motion on the basis that it does not provide for
payment of FSB’s unsecured claim, which it contends should be allowed under the informal proof
of claim doctrine. This matter constitutes a core proceedings over which the Court has jurisdiction
and authority to enter a final order.2
1 Doc. 111.
2 See 28 U.S.C. § 157(b)(2)(A) and (B) (core proceedings) and § 157(b)(1) (authority to hear core proceedings).
Case 08-41067 Doc# 125 Filed 05/19/11 Page 1 of 18
I. FINDINGS OF FACT
The facts in this case are not in dispute, and have been set forth by the parties in a Stipulation
of Facts,3 which the Court adopts. Debtors filed their Chapter 12 petition on July 30, 2008. Debtors
listed FSB as a secured creditor on their bankruptcy schedules, but did not list the amount of the
claim or the value of the security for the claim.
The Notice of Commencement of Case issued by the Court reflected a Proof of Claim
deadline of November 24, 2008.4 FSB received a copy of this Notice and Official Form 10 (Proof
of Claim form),which were mailed by the Bankruptcy Noticing Center on August 3, 2008.
Therefore, FSB had actual notice of the claims deadline, or bar date. Despite receiving this notice
and being listed as a creditor in the bankruptcy schedules, FSB never filed a formal Proof Claim.5
Debtors filed their original plan6 on October 7, 2008. FSB was identified and treated as a
secured creditor in Class 3 of the Plan, and as an unsecured creditor in Class 6 of the Plan. All
creditors listed on the Debtors’ matrix, including FSB, received a copy of this plan.
Two days later, FSB filed an objection to Debtors’ exemptions7 and a Motion for Relief from
Stay.8 In the stay relief motion, FSB indicted it had a claim of $551,477 secured by certain property,
and it sought to foreclose its interest in that property. An agreed Order granting relief to FSB was
3 Doc. 118.
4 Doc. 6.
5 The Court notes that the typical fact pattern in similar cases is as follows: the creditor fails to timely file a
formal proof of claim, but then files a proof of claim which it then seeks to relate back to the date of its “informal proof
of claim.” That theory is tested further here because FSB has simply elected to never file a proof of claim.
6 Doc. 31.
7 Doc. 37.
8 Doc. 36.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 2 of 18
entered November 5, 2008,9 and the order allowed FSB to proceed to foreclose its security interests
in that property.
On November 24, 2008, FSB filed an Adversary Complaint objecting to the discharge of its
claim against Debtor Michael Spresser pursuant to 11 U.S.C. § 1228(a)(2) and § 523(a)(2)(B).10 On
January 27, 2009, the Court entered a Stipulation and Order Confirming Debtors’ Chapter 12 Plan.11
The Chapter 12 Trustee, Debtors, and FSB had approved the Plan. The agreement between the
parties called for certain items of property to be abandoned to FSB to resolve its objection to
Debtor and FSB then settled the adversary proceeding, with an agreement that $25,000 of
FSB’s debt was deemed nondischargeable. Their Settlement Agreement, which was filed with the
Court on April 9, 2009, provided, with regard to the Debtors’ Chapter 12 Plan, as follows:
the amount payable hereunder shall be considered a secured claim of FSB and the
principal amount payable to FSB by Spresser shall survive discharge entered in
Spresser’s currently pending Chapter 12 Bankruptcy action or any subsequently filed
action, and said amount shall be deducted from the amount otherwise due and owing
to FSB in determining the extent to which FSB participates as a general unsecured
creditor under Class VI of Spresser’s confirmed Chapter 12 Plan.12
The Court approved that Settlement Agreement with an Order Approving the Joint Motion of Debtor
and the Bank to Approve Compromise and Settlement,13 entered May 7, 2009.
9 Doc. 58.
10 All future statutory references are to the Bankruptcy Code, as amended by the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, 11 U.S.C. §§ 101 - 1532 (2005), unless otherwise specifically noted.
11 Doc. 71.
12 Doc. 76, Exhibit 1.
13 Doc. 81.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 3 of 18
On December 14, 2010, the Trustee filed a Notice to Secured Creditors of Trustee’s Intent
to Disburse Funds to Allowed Unsecured Claims pursuant to D. Kan. LBR 3001.1(d).14 This notice
allowed any claimant who had originally filed a secured proof of claim to amend its claim by
January 4, 2011 “to reflect any deficiency that may exist.”
Due to the fact that FSB had never filed any claim, the Trustee’s Notice was not mailed to
FSB. However, because FSB had been actively participating in the bankruptcy, its counsel received
an electronic copy of the Notice via the Court’s Electronic Case Filing (ECF) system.
Notwithstanding this notice, FSB did not file a proof of claim in response. Based on the
claims filed, the Trustee then filed a Motion to Disburse Unsecured Funds15 on January 27, 2011.
FSB timely objected to that motion on the basis that the motion had omitted its unsecured claim.16
Finally, the parties have stipulated that because FSB now belatedly claims it has an
unsecured claim of $452,368.12, by far the largest claim, the recovery of the other, timely filed,
unsecured claimants would be significantly diluted if FSB’s belated claim is allowed. The Trustee’s
statutory fee would remain unchanged. A chart of the distribution differences is below:
Claim No. Claimant Claim Dividend Dividend
Amount without FSB with FSB
1 Discover Bank $ 9,890.86 $ 5,451.21 $1,168.53
2 Ivesco Holdings, LLC 1,133.53 624.73 133.92
3 Ener Bank USA 8,890.22 4,899.72 1,050.31
4 Tri-State Carriers, Inc. 2,840.50 1,565.50 335.58
14 Doc. 110.
15 Doc. 111.
16 Doc. 113.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 4 of 18
5 Darlings Nutrition Co. 5,807.43 3,200.69 686.10
6 Golden Plains Credit Union 12,833.19 7,072.84 1,516.14
7 Roundup Funding, L.L.C. 965.52 531.04 113.84
8 Roundup Funding, L.L.C. 4,337.17 2,390.37 512.40
9 Diversified Financial 60,076.87 33,110.55 7,097.62
10 Western Kansas Farm Credit Secured No dividend No
11 First National Equipment Amended by No dividend No
Financing, Inc. Claim 14 dividend
12 eCast Settlement Corp. 1,185.43 653.33 140.05
13 FIA Card Services, N.A. 5,267.60 2,903.17 622.33
14 First National Equipment 10,202.25 5,622.83 1,205.32
None First State Bank 452,368.12 No dividend 53,443.84
None Trustee - Statutory Fee 7,557.69 7,557.69
Additional facts will be discussed below, when necessary.
II. CONCLUSIONS OF LAW
Federal Rule of Bankruptcy Procedure 3001(a) defines proof of claim as “a written statement
setting forth a creditor's claim. A proof of claim shall conform substantially to the appropriate
Official Form.”17 “Often, in an effort to ameliorate what is perceived as a harsh result of strict
enforcement of a bar date, courts have deemed something other than a proof of claim to be an
‘informal proof of claim’ which may be amended.”18 An informal claim is some document that was
17 Fed. R. Bankr. P. 3001(a). All future references to the Federal Rules of Bankruptcy Procedure will be
designated as “Rule _____”.
18 9 Collier on Bankruptcy ¶ 3001.05 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). See also, In re
Sunwest Hotel Corp., 1998 WL 982905 at *10 (D. Kan.1998) (noting the informal claim doctrine is an equitable
principle developed by courts to alleviate the harsh results of strict enforcement of the bar date).
Case 08-41067 Doc# 125 Filed 05/19/11 Page 5 of 18
filed with the Court that is not, and was not intended to be, a proof of claim.19 The doctrine permits
a court to treat something other than an actual proof of claim as an “informal” proof of claim that
is timely filed, and thereafter, the creditor is allowed to file a “formal” proof of claim that relates
back to the date of the original filing.20 The party seeking to assert an informal proof of claim bears
the burden of proof.21
The United States Court of Appeals for the Tenth Circuit has utilized the following
five-prong test with respect to informal proofs of claim: 1) the proof of claim must be in writing; 2)
the writing must contain a demand by the creditor on the debtor's estate; 3) the writing must express
an intent to hold the debtor liable for the debt; 4) the proof of claim must be filed with the
Bankruptcy Court; and 5) based on the facts of the case, it would be equitable to allow the
A. The informal proof of claim doctrine is applicable in Chapter 12 proceedings.
The Trustee argues, as a preliminary matter, that the informal proof of claim doctrine is not
applicable in Chapter 12 proceedings. In support of this argument, the Trustee relies primarily upon
In re Drebes.23 In Drebes, the court denied the debtors’ claim that a creditor holding a priority tax
debt should receive a distribution from the Chapter 12 Trustee under the informal proof of claim
doctrine, notwithstanding the fact that no party ever filed a formal proof of claim on behalf of the
creditor. The court held that
19 9 Collier on Bankruptcy ¶ 3001.05.
21 In re Smith, 100 B.R. 289, 293 (Bankr. D.S.C. 1988).
22 Clark v. Valley Fed. Savs. & Loan Ass'n (In re Reliance Equities, Inc.), 966 F.2d 1338, 1344 (10th Cir.1992).
23 182 B.R. 873 (Bankr. D. Kan. 1995).
Case 08-41067 Doc# 125 Filed 05/19/11 Page 6 of 18
Unfortunately, Fed. R. Bankr. P. 3002 mandates that proofs of claim “shall” be filed
in Chapter 12 cases within 90 days after the first date set for the meeting of creditors,
subject to some exceptions not relevant here. While the informal claim doctrine
applies in Chapter 11 cases, it does not operate in Chapter 12 cases.24
Beyond Drebes, there appear to be few cases in the Tenth Circuit that have dealt with the
question of whether the informal proof of claim doctrine applies in Chapter 12 proceeding. In In
re Boucek,25 Judge Nugent recognized the Drebes case, but noted that “the applicability of the
doctrine in a Chapter 12 case has not been established in this district.”26 The Boucek court did not
need to decide the issue of whether an informal proof of claim could be recognized in a Chapter 12
proceeding, however, because the creditor had “wholly failed to satisfy the requirements for an
informal claim,” even if the court were to have assumed the doctrine was applicable.27
The only other case in the Tenth Circuit to address the issue of an informal proof of claim
in the Chapter 12 context was the Tenth Circuit Bankruptcy Appellate Panel’s decision in Jones v.
Wynn (In re Wynn).28 In Wynn, the BAP held that the creditor had not filed any writing that could
constitute a timely filed informal proof of claim, and thus affirmed the bankruptcy court’s decision
denying the claim. The BAP did not directly address the issue of whether informal proofs of claim
are allowed in a Chapter 12 proceeding—likely because the issue was not raised on appeal—but its
willingness to examine the creditor’s claim to see if it qualified as an informal proof of claim does
indicate, at least to some degree, the BAP’s willingness to apply the doctrine to Chapter 12 cases.
24 Id. at 874.
25 280 B.R. 533 (Bankr. D. Kan. 2002).
26 Id. at 535.
28 2002 WL 127016 (10th Cir. BAP 2002).
Case 08-41067 Doc# 125 Filed 05/19/11 Page 7 of 18
Other courts have similarly addressed informal proofs of claims in the Chapter 12 context without
questioning the doctrine’s applicability in Chapter 12 cases.29
The Court declines to follow Drebes, and instead finds that the informal proof of claim
doctrine is applicable in Chapter 12 proceedings. Drebes apparently relied exclusively on the Rule
3002 requirement that “proofs of claim ‘shall’ be filed in Chapter 12 cases within 90 days after the
first date set for the meeting of creditors . . . .”30 Although the Court acknowledges the requirement
that a proof of claim be timely filed in a Chapter 12 proceeding, the Court disagrees with Drebes that
such requirement disqualifies the application of the informal proof of claim doctrine in Chapter 12
The informal proof of claim doctrine does not excuse the requirement that a proof of claim
be filed, or eliminate the timeliness requirement set forth in Rule 3002. Instead, the informal proof
of claim doctrine lessens the formalities for what might be deemed a proof of claim, even though
that proof of claim—in whatever form is found to be sufficient—must be filed by the deadline set
in Rule 3002. The Court finds nothing in Rule 3002, or any other provisions of the Bankruptcy
Code or the Federal Rules of Bankruptcy Procedure, that would prohibit the application of the
informal proof of claim doctrine in a Chapter 12 proceeding.
29 See In re Hughes, 2006 WL 2620438 (Bankr. M.D.N.C. 2006) (noting that a creditor had “filed an informal
proof of claim” in denying confirmation of the debtor’s Chapter 12 plan); In re Degiulio, 2000 WL 35439050 (Bankr.
D. Idaho 2000) (finding that creditor could not rely upon documents filed by debtors in their Chapter 12 proceeding to
establish an informal proof of claim); In re Boudinot, 237 B.R. 413 (Bankr. S.D. Ohio 1999) (finding that creditor in
Chapter 12 proceeding had not satisfied requirements for an informal proof of claim); In re Faust, 180 B.R. 432 (Bankr.
D.S.C. 1994) (denying IRS’ assertion that its listing as a secured creditor in debtor’s Summary of Chapter 12 Plan
qualified as an informal proof of claim); and In re Novak, 103 B.R. 403 (Bankr. E.D.N.Y. 1989) (indicating that creditor
may have filed an informal proof of claim in Chapter 12 proceeding but that decision on that matter was unnecessary
because creditor was entitled to relief from stay whether it filed a claim or not).
30 Drebes, 182 B.R. at 874.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 8 of 18
B. First State Bank has not shown that the informal proof of claim doctrine is
applicable in this case.
Having found that the informal proof of claim doctrine is applicable in Chapter 12
proceedings, the Court now turns to the question whether the FSB has satisfied the requirements for
an informal proof of claim in this case. As noted above, in order for FSB to establish that it filed
an informal proof of claim, it must show that 1) the proof of claim was in writing; 2) the writing
must contain a demand by FSB on Debtors’ estate; 3) the writing must express an intent to hold
Debtors liable for the debt; 4) the proof of claim must be filed with the Court; and 5) based on the
facts of the case, it is equitable to allow the claim.31 Informal proofs of claim are still subject to the
bar date established by Rule 3002; therefore, “[t]he only documents that shall be considered are
those filed in this Bankruptcy case during the claims filing period and the Court shall not consider
activities or allegations made outside the scope of this very narrow time period in order to establish
an informal claim.”32
31 Reliance Equities, Inc., 966 F.2d at 1344.
32 In re WPRV-TV, Inc., 102 B.R. 234, 238 (Bankr. E.D. Okla. 1989) (emphasis in original). See also In re
Wynn, 2002 WL 1270176 at *5 (holding that documents filed with the bankruptcy court after the bar date “cannot serve
as an informal proof of claim under the Reliance Equities test”) and In re Boucek, 280 BR. at 536 (noting that court is
limited to a review of only those actions and pleadings done and filed before the bar date in considering whether a
creditor’s involvement constituted an informal proof of claim). One of the documents relied upon by FSB is the
settlement agreement in the adversary proceeding (Doc. 76, Exhibit 1). However, that document was not filed with the
Court until April 9, 2009—more than four months after the bar date. Therefore, it cannot serve as an informal proof of
claim in this case to which a formal proof of claim might relate back.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 9 of 18
FSB claims that it filed three documents33 prior to the bar date that satisfy the requirements
of an informal proof of claim. Those include a motion for relief from the automatic stay,34 an
objection to Debtors’ claimed exemptions,35 and an adversary complaint objecting to the discharge
of a debt owed by Michael Spresser pursuant to § 1228(a)(2) and § 523(a)(2)(B).36
First State Bank’s objection to Debtors’ claimed exemptions does not qualify as
an informal proof of claim.
FSB first cites to its objection to Debtors’ claimed exemptions in support of its argument that
it filed an informal proof of claim. The objection to exemptions does meet some of the requirements
for a proof of claim. It is in writing, and it was filed with the Court before the bar date. Beyond
that, however, the objection to exemptions in no way complies with the requirements for an informal
proof of claim. The objection does not even indicate that FSB has a claim against Debtors, let alone
state the amount of any such claim. It certainly does not make a demand against the estate or
indicate an intent to hold Debtors liable for any debt.
Instead, the objection to exemptions dealt solely with the values assigned by Debtors to
certain pieces of property that Debtors claim as exempt. It claims the property is actually worth
more than the statutory allowance for tools of the trade in Kansas.
33 The Court notes FSB also filed a Notice of Appearance and Request for Notice (Doc. 15), an agreed Motion
to Enlarge Time to file an objection to dischargeability (Doc. 51), an Objection to Debtors’ Motion to Avoid Liens (Doc.
55), and an Objection to Chapter 12 Plan (Doc. 56), all before the bar date. But the bank but does not contend that any
of these documents constitute an informal proof of claim. FSB also cites to a settlement agreement between the parties
resolving the adversary case in support of its argument that it filed an informal proof of claim. (Doc. 76) However, that
agreement was not filed with the Court until April 9, 2009—well after the expiration of the bar date.
34 Doc. 36.
35 Doc. 37.
36 Doc. 60.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 10 of 18
First State Bank’s Motion for Relief from Stay does not qualify as an informal
proof of claim.
The Court also finds that the FSB’s Motion for Relief from Stay does not qualify as an
informal proof of claim. Unlike the objection to exemptions, the stay relief motion does in fact
indicate that Debtors owe a debt to FSB, and that the amount of that debt was $551,477.20 on the
date Debtors filed their bankruptcy petition. In addition, the motion was submitted to the Court, in
writing, prior to the bar date. However, there is simply nothing in the stay relief motion that can be
construed as a demand against Debtors’ bankruptcy estate, or an indication that FSB intends to hold
Debtors liable on the debt.
FSB’s Motion for Relief from Stay contains eight numbered paragraphs. The first paragraph
details the various promissory notes executed by Debtors in favor of FSB on December 10, 2007.
The second paragraph details the current principal balance and accrued interest of each of those
notes as of the date of filing of the petition. The third paragraph outlines the property interests in
which Debtors granted FSB a security interest in order to secure the loans outlined in the first
paragraph. The fourth paragraph details the steps taken by FSB to perfect its security interest in
Debtors’ property. The fifth paragraph simply identifies the date on which Debtors filed their
bankruptcy petition. The sixth paragraph discusses the fact that FSB is not adequately protected,
that Debtors have no equity in the personal property subject to the stay relief motion, and that the
property is not necessary to an effective reorganization. The seventh paragraph simply states that
FSB “will suffer irreparable injury, loss or damage if it is not granted relief from the automatic stay
so that it may continue with foreclosure of its real estate mortgages and security interests in order
to recover the value of the collateral.” The eighth numbered paragraph discusses the time
requirements for conducting a hearing on a motion to modify the stay. In its prayer for relief, FSB
Case 08-41067 Doc# 125 Filed 05/19/11 Page 11 of 18
“moves the Court for the issuance of an Order Modifying the Automatic Stay to permit FSB, and
any other creditor claiming a lien in any of the collateral described herein, to proceed with sale of
the personal property; and that FSB have such other relief as the Court deems just and proper.”
At no point in that motion does FSB make a demand for payment of its claim against
Debtors’ estate, or indicate that it intends to hold Debtors liable on the debt in question. A stay
relief motion, by its very nature, would typically not make such claims.37 The purpose of the stay
relief motion was to seek permission to pursue remedies outside the bankruptcy context in hopes of
collecting some, or all, of FSB’s claim against Debtors. The motion for relief from stay was not a
demand against Debtors’ bankruptcy estate—it was an effort to satisfy at least a portion of FSB’s
claim outside the bankruptcy process.38 Similarly, the motion for relief from stay does not indicate
an intention to hold Debtors liable for the debt—it seeks permission to foreclose on Debtors’
property to help satisfy the debt without ever indicating that Debtors would remain liable on any
remaining balance after the property was sold.
Nothing in the motion for relief from stay leads the Court to conclude that FSB intended to
assert a claim against the bankruptcy estate for any unsecured portion of its claim against Debtors,
or that it intended to hold Debtors liable for the debt. Therefore, the Court concludes that the
Motion for Relief from Stay does not constitute an informal proof of claim to which an untimely
proof of claim could relate back.
37See In re Roberts, 367 B.R. 677, 682 (Bankr. D. Colo. 2007) (stating that “[u]nder the Reliance Equities
standard, there may be circumstances where a motion for relief from stay could constitute an informal proof of claim,
but those circumstance[s] would be rare indeed.”).
38 The Court recognizes that some courts have held that the intent to hold the estate liable may be implicit. See,
e.g. Sun Basin Lumber Co. v. United States, 432 F.2d 48 (9th Cir. 1970) and County of Napa v. Franciscan Vineyards,
Inc. (In re Franciscan Vineyards, Inc.), 597 F.2d 181 (9th Cir. 1979). However, as was noted in In re Mitchell, 82 B.R.
583, 586 (Bankr. W.D. Okla. 1988), “no such implication is found here. . . . The motion . . . for relief from the automatic
stay does not indicate an intent to seek any distribution from the estate.”
Case 08-41067 Doc# 125 Filed 05/19/11 Page 12 of 18
The complaint in the adversary proceeding does not constitute an informal
proof of claim.
The final document FSB contends could act as an informal proof of claim is the adversary
complaint it filed seeking to except the debt owed to it from Michael Spresser’s discharge pursuant
to § 1228(a)(2) and § 523(a)(2)(B). As with the objection to exemptions and the stay relief motion,
the adversary complaint was submitted to the Court in writing. In addition, the adversary complaint
clearly indicates an intent to hold Debtor, Michael Spresser, liable on the debt.39 Clearly, the only
reason for filing a dischargeability complaint in a bankruptcy proceeding is if the creditor intends
to seek repayment of the debt directly from a debtor.
The Court finds, however, that as with the motion for relief from stay, the complaint in the
adversary proceeding does not in any manner make a claim upon the bankruptcy estate. The
complaint seeks “an order denying Debtor Michael John Spresser any discharge of his indebtedness
to FSB; and that the Court award such other and further relief as it deems just and equitable.” FSB,
through the complaint, clearly intends to try to collect on this debt from Michael Spresser, but at no
point does it request a distribution from the bankruptcy estate or make any demand on the
bankruptcy estate. It is entirely silent on that issue. Therefore, the Court finds that the adversary
complaint does not satisfy the requirements for an informal proof of claim.
Even if the above documents did meet the first four requirements for an
informal proof of claim, the Court finds it would be inequitable to allow an
informal proof of claim to be filed by First State Bank.
39 The adversary proceeding was filed against Michael Spresser only, not against his wife and co-debtor, Linda
Spresser. The fact that the document shows an intent to hold only one debtor liable on the debt could create a problem
when the underlying debt which the creditor seeks to bring into the bankruptcy proceeding through an informal proof
of claim seeks a distribution from a joint bankruptcy estate. However, because the Court ultimately finds that the
adversary complaint does not constitute an informal proof of claim in this case for other reasons, it does not need to
address the difficult issue created by only naming one of two debtors as a defendant in an adversary proceeding.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 13 of 18
Although the Court finds that none of the documents filed by FSB prior to the bar date satisfy
the first four requirements for an informal proof of claim, the Court will also briefly address why
it would be inequitable to allow the informal proof of claim in this case even if the other
requirements had been met. One of the equitable considerations the Court should consider when
analyzing an informal proof of claim is whether the creditor had sufficient opportunities to protect
itself, but failed to do so.40
FSB admits it received a copy of the Notice of Chapter 12 Bankruptcy Case, Meeting of
Creditors, & Deadlines41 issued by this Court on August 1, 2008. That notice clearly set forth the
bar date for filing claims, indicating any proofs of claims for non-governmental entities must be filed
no later than November 24, 2008. FSB then hired bankruptcy counsel and became actively involved
in the bankruptcy proceeding, beginning with that counsel’s Entry of Appearance and Request for
Notice42 filed on August 18, 2008. Between its entry of appearance and the bar date, FSB objected
to Debtors’ claimed exemptions, objected to Debtors’ Chapter 12 plan, filed a motion for relief from
stay, defended a motion to strip its lien in Debtors’ exempt property, and filed an adversary
proceeding objecting to the discharge of its claim against one of the Debtors. FSB’s own brief in
this matter suggests that a proof of claim could have been filed as late as June 6, 2009, which is 30
days after the order approving the settlement in the adversary proceeding, pursuant to Rule
40 See Reliance Equities, 966 F.2d at 1345 (holding that “the equities do not favor protecting a financial
organization that had numerous opportunities to protect itself.”); In re Turner, 2003 WL 23838107 at *3 (Bankr. D. Kan.
2003) (holding that “equity does not favor [a creditor] where it had numerous opportunities to protect itself.); and PCFS
Financial v. Spragin (In re Nowak), 586 F.3d 450, 456 (6th Cir. 2009) (quoting Reliance Equities for the proposition
that “the equities do not favor protecting a financial organization that had numerous opportunities to protect itself.”).
41 Doc. 6.
42 Doc. 15.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 14 of 18
In addition, the Trustee filed a Notice to Secured Creditors of Trustee’s Intent to Disburse
Funds to Allowed Unsecured Claims43 on December 14, 2010. That notice gave all secured creditors
twenty-one days to file an amended proof of claim to reflect any deficiency that might exist on their
claims after liquidation of collateral. Although FSB claims it had filed documents qualifying as a
proof of claim prior to the bar date, it did not file any amendment to its “proof of claim” after
receiving this notice to formalize any deficiency it claims it was owed as an undersecured creditor.
As previously noted, FSB simply never filed a formal proof of claim in this case.
FSB was actively involved in this bankruptcy, sought to protect its interest in various ways,
and admittedly had clear notice of the bar date from the official notice issued by the Court. The
Court finds that the equities in this case do not tip in favor of FSB when it was represented by legal
counsel at all times, yet simply failed to follow the statutory requirements for filing a proof of claim.
Another factor that weighs heavily against FSB when balancing equities is the effect the
allowance of its claim would have on the other unsecured creditors—each of whom fully complied
with the requirements for filing a proof of claim.44 Without factoring the unsecured claim of FSB,
each unsecured creditor is currently projected to receive a 55% dividend on its claim. If FSB’s
unsecured claim—which is more than three and one-half times the amount of all the other unsecured
claims combined—is allowed, the dividend to each unsecured creditor shrinks to less than 12%.
43 Doc. 110.
44 See In re Nowak, 586 F.3d at 458-59 (recognizing that a large dilution of other unsecured creditors’ claims
is a factor to be considered when deciding whether it is equitable to allow an informal proof of claim); In re Outboard
Marine Corp., 386 F.3d 824, 829 (7th Cir. 2004) (recognizing the effect “on the payout to creditors with timely-filed
claims” as an equitable factor in determining whether to allow an informal proof of claim); In re Turner, 2003 WL
23838107 at *4 (Bankr. D. Kan. 2003) (holding that the reduction of the unsecured dividend form approximately 60%
to less than 7% weighed against the creditor in determining whether it was equitable to allow an informal proof of claim);
and In re Wigoda, 234 B.R. 413, 417 (Bankr. N.D. Ill 1999) (holding that the reduction of a dividend from 33% to “a
fraction” of that percentage was prejudicial to other unsecured creditors and could not be allowed).
Case 08-41067 Doc# 125 Filed 05/19/11 Page 15 of 18
Accordingly, to reach a result where FSB would be collecting a mere 12% of its unsecured claim,
the Court would require the unsecured creditors who timely followed the requirements for filing a
proof of claim to sacrifice payment of over 33% of their claims. The Court finds this would not be
In support of its assertion that the Court should recognize an informal proof of claim, FSB
raises two equitable arguments. First, it notes that its claim is not contested and has been
acknowledged in pleadings throughout this case. Second, FSB claims that it was the fault of its
attorney that a formal proof of claim was never filed, and that the Court should not hold that failure
With regard to the first argument, the Court agrees that this factor does weigh in favor of
FSB. This claim is not a surprise to Debtors, the Trustee, or perhaps any creditor, and had the proof
of claim been timely filed, there is little question it would have been allowed.45 The Court places
no value, however, in FSB’s second argument. FSB is bound by the actions of the attorneys it hires
to represent it before the Court.46 Any failure by FSB’s attorneys to properly protect the bank’s
interests is an issue to be resolved between those parties; it is not an equitable consideration this
Court can properly entertain.
45Although this equitable argument, in a vacuum, may have some appeal, the Court also recognizes that the
Tenth Circuit BAP has sated that the mere fact the debtor was aware of the claim against her does not lead to the
allowance of an informal proof of claim. See In re Wynn, 2002 WL 1270176 at * 4 (holding that fact debtor was aware
they had a claim against her is “without merit because the Tenth Circuit expressly stated in Reliance Equities that a
Chapter 7 trustee's ‘knowledge of a claim does not constitute an adequate informal claim.. . .)’”
46 See Security Nat’l Bank v. John Deere Co., 927 F.2d 519, 520 (10th Cir. 1991) (stating “it is a fundamental
principle of our representational legal system . . . that a party acts through chosen counsel, whose carelessness or
ignorance, therefore, generally does not constitute grounds for relief for his client.”). See also Eastman v. Union Pac.
R. Co., 493 F.3d 1151 (10th Cir. 2007) (citing Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir. 2006), for the proposition
that “a client is bound by the acts of her attorney” and has alternative remedies if the advice was not sound).
Case 08-41067 Doc# 125 Filed 05/19/11 Page 16 of 18
Balancing the equities in this case, the Court finds that, even if FSB had filed a pleading that
would otherwise qualify as an informal proof of claim, it would not be equitable to treat that
document as a proof of claim in this case. As noted by the Sixth Circuit Court of Appeals in In re
This is not a case in which an unsophisticated lender complied with the substance of
the bankruptcy rules but unknowingly failed to file the appropriate form. Rather, the
lender in this case, a financial institution represented by counsel from the beginning
of the bankruptcy proceedings, failed to timely file a proof of claim despite repeated
opportunities to do so.47
In addition, the Court cannot overlook the drastic reduction in the dividend available to those
creditors who complied with the law were the Court to allow FSB’s “claim.” Accordingly, FSB’s
assertion that its claim was essentially known throughout these proceedings is insufficient to tip the
scales of equity in its favor.
The Court finds that FSB’s assertion that it is entitled to have its claim allowed under the
informal proof of claim doctrine should be denied, as it has not met its burden of proof. Although
the Court holds that the informal proof of claim doctrine is available to creditors in a Chapter 12
proceeding, nothing filed by FSB prior to the bar date for filing claims satisfies the requirements for
an informal proof of claim. In addition, even if the other requirements for the allowance of an
informal proof of claim had been met, the Court finds it would be inequitable, under the facts of this
case, to allow the informal proof of claim. Therefore, FSB’s Objection to Trustee’s Motion to
Disburse Unsecured Funds is overruled, and the Trustee’s Motion to Disburse Unsecured Funds is
47 586 F.3d at 459.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 17 of 18
IT IS, THEREFORE, BY THE COURT ORDERED that the Motion to Disburse
Unsecured Funds48 is granted. The Trustee is authorized to disburse funds as set forth in the motion
filed on January 27, 2011, which provides for no payments to First State Bank.
48 Doc. 111.
Case 08-41067 Doc# 125 Filed 05/19/11 Page 18 of 18
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