Judge Michael Parker was sworn in as the newest Bankruptcy Judge in the Western District of Texas on November 1, 2021. He was a law clerk to Judge Ronald B. King, the judge who he replaced and practiced in San Antonio with Norton Rose Fulbright for many years. He was kind enough to answer some written questions that I sent him and I did some research on my own. Here are some things you should know about Judge Parker. Judge Parker holds four degrees: B.S. in engineering from the University of Colorado; M.S. in engineering, M.B.A., and J.D. from U.T. Austin. He graduated from the University of Texas School of Law in 1993. He clerked for Judge King from 1993-1995 and worked for Norton Rose Fulbright for the entire time from when he left his clerkship until he took the bench. He is Board Certified in both Business and Consumer Bankruptcy. He was a founding member of the Larry E. Kelly Inn of Court and is currently its president. Judge Parker was the vice chairman of the San Antonio Legal Services Association (SALSA), a pro bono service organization that provides volunteer attorney free legal services to those with limited means. He has been active in SALSA and its predecessor for many years and volunteered his time on numerous occasions to represent clients pro bono, including representing a debtor pro bono in a chapter 12 case.I have slightly edited the Q & A for clarity.Q: How did you make the decision to attend law school? Was this something you had always planned? A: I had no plan to attend law school. I planned to be an engineer. While I enjoyed the engineering, I changed my life plans while working as a construction project manager in Dallas. When I looked ahead to where I would be in 5-10 years, my job appeared to be a lifetime of travel from project to project, which appealed to a younger me, but didn’t fit my long-term plans. I investigated other options and decided on law school because I was fascinated by the law, and a law degree appeared to offer me more options than other paths. Q: Did you take a bankruptcy class in law school? A Yes. My love for bankruptcy started with Jay Westbrook’s secured credit course and subsequent bankruptcy course. I also took the bankruptcy practice course/lab, which was taught by Kaaran Thomas and her then ex-husband Matt Hoffman. At that time, Kaaran principally represented creditors and Matt principally represented debtors. The class required that each student propose and confirm a plan of reorganization. Q: Did you know that you wanted to practice bankruptcy law when you were in law school? A: Not when I entered, but by the time I graduated, I was pretty sure. Construction and criminal law still had some appeal. My time clerking for Judge King sealed the deal. I turned down a clerkship with the Court of Criminal Appeals to clerk for Judge King. Q: How did your background in engineering prepare you to practice law? A: Engineers and lawyers think similarly. Both professions solve problems for clients. My engineering background taught me how to approach and solve problems for clients. Q: What did you learn clerking from Judge King? A; I learned what good lawyers do and don’t do inside and outside the court. Q: Where have you practiced since concluding your clerkship? How would you describe your practice?A: For 26 years I had the honor of practicing at Fulbright & Jaworski (which became Norton Rose Fulbright in 2013). My practice varied over time. Early on, I mostly represented several chapter 7 trustees, various commercial and bankruptcy litigants (large and small), landlords, unsecured creditors’ committees, chapter 11 trustees, large creditors, and individual (before BAPCPA in 2005) and corporate debtors in chapter 11 and chapter 7 matters. Over time I was also fortunate to represent several large, mid-stream oil & gas companies in (i) large chapter 11 matters and litigation, (ii) large, distressed acquisitions, and (iii) some international matters. Q: Did you have a law firm mentor you would like to mention? A: I had several law firm mentors who took me under their wings and taught me how to practice law, but a vast majority of my time was spent working with Jack Partain, Jr. and Steve Peirce on projects Jack brought to the firm. Other mentors are too numerous to mention. Q: What are some of the most important cases that you have worked on and why? A: I represented the Brazos Electric Power Cooperative, Case No. 21- 30725 (S.D. Texas, Judge Jones) in its chapter 11 case triggered by the events of the February 2020 Texas freeze. The case contains a plethora of fascinating legal issues. The case is important because its outcome has implications for the entire ERCOT power market, which has implications for the State of Texas. I represented the largest unsecured creditor in the In re O. W. Bunker U.S.A., LLC, In re O.W. Bunker North American, LLC, In re O.W. Bunker Holding North America, Inc. bankruptcy cases administratively consolidated under Case No. 5:14-bk-51720 (D. Conn.). The world-wide O.W. Bunker enterprise was the largest bunker fuel supplier in the world when it collapsed in November of 2014. The U.S. O.W. Bunker bankruptcies triggered the “arresting” of the multi-million dollar vessels which had purchased bunker fuel at ports throughout the world. Maritime law allows a vendor who provides “necessaries” for a vessel, to recover against the vessel in rem for payment. The case and related adversary and arrest proceedings spanned five years, multiple U.S. district courts, multiple foreign courts, including Britain’s highest appellate court, two U.S. circuit courts and the U.S. Supreme Court before it was globally resolved. The case had international and national legal implications for the entire bunker fuel and shipping industry. I represented the creditors committee and then the chapter 7 trustee in the notorious chapter 11 and then chapter 7 case of Franklin Wright, Jr. At one time, Mr. Wright had the most lucrative personal injury litigation practice in San Antonio. The charismatic Mr. Wright filed his initial case to deal with multiple legal problems stemming from his failure to pay his income taxes, his hiding of his assets, and his borrowing of money from his personal injury clients. Those problems triggered a federal indictment and Texas disbarment proceedings. I represented the trustee in a lawsuit against Mr. Wright’s former law partner, who absconded in the dead of night on Christmas eve, with Mr. Wright’s lucrative contingency fee clients and files. Mr. Wright was our key witness. The legal precedent set in the case preceded the collapse of several large law firms nationally, which also had to deal with the tension between the value of contingency fee matters to a bankruptcy estate and the right of a client to choose their own counsel. Q: If the answer is different, what are some of the most personally significant cases you have worked on and why? (i.e., for me personally, one of the most significant cases I worked on was a pro bono child custody case where my work allowed an abused child to be adopted by her Uncle and grow up to get married and have a family of her own). A: I have done substantial pro bono work during my career. My first pro bono matter was referred to me by Volunteer Legal Services in Austin for a family farm in rural Texas. VLS referred the case to me the first month I started working for Fulbright, and just after I had clerked for Judge King. VLS thought the farm clients needed to be filed as a chapter 12 case and no one at VLS had any chapter 12 experience. That case involved threatened litigation and a negotiated settlement with the local bank that allowed the farmers to keep their homestead, some grazing and farming land and some cattle. I received a tin of homemade cookies that Christmas, and for the next couple years as my compensation. As a result of my experience with that case, I regularly took on pro bono cases and served as my then firm’s San Antonio Office pro bono chair for two decades.Q: What are some of the things you did to prepare for taking the bench since your appointment? A: For many months, I spent countless hours watching (via Webex) the dockets of Judge King, Judge Gargotta, Judge Mott and Judge Davis. After some of the hearings I asked each judge questions about what they did and why. I met with the chapter 13 trustees and multiple consumer debtors’ attorneys to ask about their concerns and what the court might do better in their opinion. I studied all the key Fifth Circuit chapter 13 opinions as recommended and suggested by the Chapter 13 trustees and by debtors’ counsel. I actively participated (via Zoom) in Phase 1 of what is colloquially referred to as “baby judges’ school.” I met (via Zoom) with the Waco Bankruptcy Bar Associations to ask about their concerns and what the court might do better in their opinion. I am active in multiple bankruptcy bar groups, whose members I consulted regarding their thoughts about what I should do to prepare for the bench. Q: Do you find the constant sniping about Red Raiders and Aggies to be tiresome? (Please don’t answer that question). A: My children attended or are attending UT, Rice, Texas A&M, UTHSCSA, Texas Tech University, Savanah College of Art and Design and Utah Valley University. I am accustomed to, and a fan of, university rivalries. Q: Are there any practice areas that you are likely to encounter as a judge that were not part of your law firm experience and how do you intend to prepare for those areas? A: Yes. Chapter 13 practice. I focused most of my time before taking the bench on preparing for the chapter 13 practice – both by studying the practice area and by consulting with those who regularly practice in that area. I also focused on the bthanks est practices of the judges I know and judges I have appeared before.Q: What is a personal challenge that you have had to overcome in your life?A: I worked through each of my college experiences to pay for those experiences. Q: What do you enjoy doing when you are not working? A: When not working, I enjoy spending time with my wife, my children and my family. We play lots of board and card games when we gather. Pre-COVID, my wife and I took several dance classes and were enjoying various dance halls in central Texas. I used to spend all my spare time (i) at the soccer fields coaching, refereeing and watching, and (ii) at my children’s non-soccer events – swimming, UIL, debate, choir, theatre, scouts, Latin club, etc.As a former soccer referee myself, I can note some parallels and some distinctions between refereeing and judging which may help Judge Parker in his new role. Under the Bankruptcy Act, judges were known as referees. Both referees and bankruptcy judges apply laws, although there are only 17 laws of soccer. Referees have assistant referees to help them while judges have law clerks. However, the biggest distinction is that judges sit behind a bench while a referee has to make his decisions while running up and down the field with the players. Many thanks to Judge Parker for taking the time to give these thoughtful responses. I hope that you find these answers helpful as you prepare to appear before him.
Summary: In early 2018, Donette Thomas began the process of purchasing a home and was pre-approved for a mortgage though Movement Mortgage for $1,600,000.00, then making an offer to purchase, having the home inspected, and paying earnest and due diligence … M.D.N.C.: Thomas v. Equifax Information Services, L.L.C.- Causal Nexus for FCRA Action Read More » The post M.D.N.C.: Thomas v. Equifax Information Services, L.L.C.- Causal Nexus for FCRA Action appeared first on .
By now, we have grown used to Zoom hearings, Zoom mediations and Zoom depositions. However, a case I heard discussed at the ABI Winter Leadership Conference points out that as ubiquitous as these technologically assisted interactions are, they can pose both challenges and perils to the unprepared. In Agility Holdings, LLC v. North Shore Healthcare, LLC, No. 18-CV-8721, Dkt. #77 (Wisc. Cir. Court, Milwaukee County, Branch 18, 1/22/21), an attorney was taking a deposition by Zoom. During the deposition, his legal assistant received an email which was apparently intended for the witness. The email indicated that the attorney who was defending the deposition was communicating with the witness and helping him to answer questions. The attorney who was taking the deposition obtained a time-stamped transcript of the deposition and then propounded discovery asking for all communications between the attorney and the witness during times when the deposition was not on a break. The resulting discovery revealed that the attorney had been coaching the witness on how to answer questions with their theory of the case. The deposing attorney then sought death penalty sanctions against the other side. The offending lawyer admitted his transgression and confessed to a lapse of judgment. The Court did not strike the pleadings, but did award sanctions against the attorney individually payable to the Court clerk, ordered the firm to reimburse the opposing party for its costs and precluded the witness from testifying at trial to any matters on which he/she had been coached during the deposition. One takeaway from this case is that an attorney's opening sequence should (1) ask the witness whether he is relying on any notes or other documents, (2) instruct the witness not to communicate with anyone except during breaks, (3) instruct the witness to move his phone to a location where he could not consult it during the deposition and (4) instruct the witness to close email, chat messaging and any other means of electronic communication. Acknowledgement: This case was discussed in connection with the panel Match Wits With the Experts! An Ethics Game Show Featuring the Audience. The panelists were Prof. Nancy Rapoport, Claire Wu, Tom Horan and Michael P. Richman. This was Mr. Richman's case. Because the opinion is unpublished, I am relying on the panel discussion for the particulars. Any inaccuracies in describing the case are due to my ability to listen and remember.
Can Bankruptcy Stop Wage Garnishment? The short answer is yes in most cases. However, there are exceptions every person suffering wage garnishment should know and prepare for if they believe they might file a bankruptcy case. If your wages are being garnished, call our Philadelphia bankruptcy attorneys for help. Your consultation is free of charge, and we will explain your options to you and whether filing bankruptcy will stop your wage garnishment and discharge that debt. Wage Garnishment Explained When a worker’s wages are “garnished,” a sum gets deducted from the worker’s net earnings to partially satisfy a money judgment. The creditor or support obligee must obtain a court order and serve it upon the worker and the worker’s employer. The employer is bound to comply with the court order, deduct the amount specified from net earnings, and submit the deducted funds to the specified account. If the debt is related to child support, spousal support, income tax, or federal student loans, these obligees do not have to get a court order to garnish wages but may do so through operation of law. State law dictates how much of a worker’s wages and what types of income can be garnished. The following types of income are exempt from garnishment: Social Security benefitsSSI and SSDI Food stamps Governmental rental assistanceUnemployment benefitsWorkers’ compensation benefitsStudent loansVeteran’s benefitsChild supportCivil service retirement benefitsMost other pensions Most states allow a creditor to obtain a wage garnishment order for any type of debt. However, Pennsylvania, North Carolina, South Carolina, and Texas do not permit wage garnishment except for child support, federal student loans, tax debt, and court-ordered fines and restitution. Pennsylvania Law also allows for wages to be garnished for monies owed arising out of a lease where the Landlord holds a judgment. Even if you live in Pennsylvania, but work in another state, if a judgment is entered against you in a different state, the judgment creditor in that case may be able to garnish your wages. Bankruptcy Does Stop Garnishment The moment you file bankruptcy, the “automatic stay” is in place. The automatic stay “stays” or stops all collection efforts, including letters, phone calls, lawsuits, and yes, wage garnishments. When the automatic stay is in place, your creditors may not continue to garnish your wages, and they may not seek wage garnishment orders against you. Automatic Stay in Chapter 7 Bankruptcy The automatic stay is a powerful tool for debtors in that it halts all collection efforts, pending litigation, and evictions. However, a debtor may not invoke the automatic stay without limits, which were imposed by Congress to prevent abuse of the bankruptcy process. Multiple Chapter 7 Bankruptcy Filings If the debtor has filed bankruptcy in the previous year, the automatic stay lasts only 30 days. A debtor can obtain an extension if they show the Court that they are not using the bankruptcy system in bad faith. If the debtor filed two or more cases in the previous year, there will be no automatic stay. In order to get the automatic stay, you need to go before the Bankruptcy Judge to show why you should be entitled to the Automatic Stay. If the Judge is satisfied, he issues an Order imposing the automatic stay. Wage Garnishment After Filing Bankruptcy If the debt your garnishment pays is dischargeable, the wage garnishment will not resume when your bankruptcy case closes and the automatic stay lifts. If a creditor starts garnishing wages on a discharged debt, that is a violation of the discharge order and they can be subject to Court sanctions. If the debt your garnishment was paying was nondischargeable, such as past due child support, alimony, government fines or fees, student loan debt, or nondischargeable income taxes, the wage garnishment may resume when your bankruptcy case closes. Timing Your Bankruptcy Claim to Stop Garnishment & Get Wages Back For credit card debt, medical bills, and personal loans, the creditor must serve you with notice that your wages are to be garnished. You should speak with a bankruptcy attorney as soon as you receive that notice to plan a course of action that prevents the garnishment from starting. If the wage garnishment started or began without notice to you, as in the case of support and tax arrears, you should talk with a bankruptcy attorney as soon as possible. If you file quickly, you can stop the garnishment by giving a copy of your docket report to your employer and to the creditor. You may also be able to get a refund of the garnished wages. The Bankruptcy Court considers garnished wages “preferential treatment” of that creditor in that they get more of their debt paid than others of your creditors. You or the Trustee can file a preference action and get garnished money back as long as: The garnishment happened within 90 days of the bankruptcy filing;Those wages would be otherwise exempt in bankruptcy;The creditor took at least $600The debtor exempted those wages in their bankruptcy petition Be patient – this process can take several months. Wage Garnishment After Your Bankruptcy Ends Creditors cannot garnish wages on debt that was discharged in your bankruptcy. However, those creditors with high priority claims, such as support obligees and the government, can restart or continue garnishing your wages. Hopefully, with much of your unsecured debt discharged, bankruptcy has made your remaining financial obligations more affordable. Talk with a Bankruptcy Lawyer About Your Wage Garnishment As soon as you know or think that your wages may be garnished, contact us for your free, no-obligation consultation. We can tell you what debts will be discharged entirely and advise you as to how to handle your nondischargeable debt. We’ve helped thousands of clients get a fresh start – let us help you too. The post Can Bankruptcy Stop Wage Garnishment? appeared first on David M. Offen, Attorney at Law.
In a case touching on a number of legal issues, Judge Grossman granted in part a motion to dismiss a fraudulent conveyance action, but with leave to amend, in In re Bal Harbour Quarzo, LLC, 2021 Bankr. LEXIS 3298, Case No 18-11793-SMG, Adv No 20-01079-SMG (Bankr. S.D. Fla. 3 Dec 2021). The plaintiff in the adversary proceeding was the liquidating trustee of a trust. He filed an 18 count complaint against a number of defendants related to a failed real estate development project. the court first examined whether it had personal jurisdiction against the defendants. Two defendants challenged such jurisdiction. The Court initially looked to Rule 7004(f) of the Federal Rules of Bankruptcy Procedure, which provides:If the exercise of jurisdiction is consistent with the Constitution and laws of the United States, serving a summons or filing a waiver of service in accordance with this rule or the subdivisions of Rule 4 F. R. Civ. P. made applicable by these rules is effective to establish personal jurisdiction over the person of any defendant with respect to a case under the Code or a civil proceeding arising under the Code, or arising in or related to a case under the Code. Neither defendant had challenged service of process under Rule 7004. The Court indicated it must determine whether the exercise of jurisdiction is consistent with the laws and Constitution of the United States. This requires a finding that the defendants have sufficient minimum contacts with the US such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.1 General jurisdiction exists as to a foreign defendant when their affiliates with the form are so continuous and systematic as to render theme essentially at home in the forum, and there must be an affiliation between the forum and the underlying controversy. As neither defendant submitted any evidence that the court lacks jurisdiction, the court found that Plaintiff had made a prima facie showing that personal jurisdiction existed. This including showing as to one defendant that he was a US Citizen with a Florida drivers license and a social security number, and is registered to vote in Florida. As to the other defendant Plaintiff alleged she had a social security number, holds title to real property in the US, continues to maintain financial and other business relationships in the US, and was a defacto manager of the debtor. Such allegations were sufficient to make a prima facie case for personal jurisdiction. The defendant's also moved to dismiss for failure to state a claim. This includes a claim to avoid a transfer from an alleged alter ego of the debtor. In order to recover transfers allegedly made by an alter ego, the alter ego must be named as a defendant by the trustee, served with process, and provided a full opportunity to respond to the alter ego allegations. Substantively, in order to pierce the corporate veil, the court must find by a preponderance of the evidence that 1) a shareholder dominated and controlled the corporation to such an extent that the corporation's existence was in fact nonexistent and the shareholders were in fact alter egos of the corporation; 2) the corporate form must have been used fraudulently or for an improper purpose; and 3) the fraudulent or improper use of the corporate form caused injury to the claimant.2 As the plaintiff cited to the wrong case involving a default order determining that one entity: Synergy Entities was deemed to be the debtor's alter ego, but that does not establish that another entity: Synergy Capital, was an alter ego. Thus the motions to dismiss were granted on this basis, with leave to amend. The next issue was the four year statute of limitations under Florida's Uniform Fraudulent Transfer Act, Fla. Stat. §726.110(1). While this transfer occurred more than four years prior to the suit, plaintiff points to an exception allowing a claim if brought within one year after the transfer or obligation could reasonably have been discovered by the claimant. Plaintiff asserts he satisfies this exception as he was appointed state court receiver for debtor within one year of the bankruptcy filing date. However, to state a claim under the Bankruptcy Code for fraudulent transfers, 11 U.S.C. §544(b)(1) Plaintiff must identify an unsecured (triggering) creditor that would have had actual standing to seek to avoid an recover the applicable transfers as of the petition date.3 As no such triggering creditor was alleged, the motion to dismiss must be granted, again with leave to file an amended complaint identifying such creditor.1 Johnson v. Lovato (In re Jimenez), 627 B.R. 536, 544-45 (Bankr. S.D. Fla. 2021).↩2 In re Xenerga, Inc., 449 B.R. 594, 598-99 (Bankr. M.D. Fla. 2011).↩3 Furr v. T.D. Bank,N.A. (In re Rollaguard Sec., LLC), 570 B.R. 859, 881 (Bankr. S.D. Fla. 2017). ↩Michael BarnettMichael Barnett, PA506 N Armenia Ave.Tampa, Fl 33609-1703813 870-3100https://hillsboroughbankrutpcy.com
Walking out to your driveway or street to find your vehicle missing is a horrible way to start your day. If you were behind on your monthly loan payments, your car was probably not stolen. It was repossessed. Your lender is not required to give you any notice before taking your car. Lenders have this […] The post Can You Get Your Car Back After it is Repossessed in Pennsylvania appeared first on .
Knowing when to answer a lawsuit is important to avoid a default judgment. However, different types of courts have different rules for how to serve a complaint and when the answer is due. While I have long known about the rule for Texas state courts, I did not realize that federal bankruptcy courts and district courts have different rules. Bankruptcy Court Service in bankruptcy court is governed by Fed.R.Bankr.P. 7004 and Official Form 2500A. In bankruptcy court, the summons may be served by first class mail and nationwide service is allowed. Fed.R.Bankr.P. 7004(b) and (d). The answer is due within 30 days after issuance of the summons. Fed.R.Bankr.P. 7012(a). In order to keep plaintiffs from sitting on a summons and letting the time run out, a summons must be served within seven days from issuance. Fed.R.Bankr.P. 7004(e). Thus, when calculating an answer date in bankruptcy court, the answer is always due based on when the summons is issued. However, if the summons is not timely served, the plaintiff must obtain a new summons and start over. Federal CourtService in U.S. District Court is governed by Fed.R.Civ.P. 4 and Official Form AO 440. In District Court, the summons may be served by any means allowed by the state, by delivering a copy of the summons to the defendant, by "leaving a copy . . . at the individual's dwelling or usual place of abode with someone of suitable age and discretion who resides there" or by delivering a copy to the person's agent for service. Fed.R.Civ.P. 4(e). Thus, the Federal Rules of Civil Procedure contemplate personal service unless state law allows a different method. An answer in district court is due within twenty-one days after being served. Fed.R.Civ.P. 12(a). Thus, the deadline in district court is nominally shorter than in bankruptcy court but runs from the date of service. Texas State Court In Texas state court, service may be by delivery to the defendant or by certified mail or registered mail, return receipt requested. Tex.R.Civ.P. 106(a). While the rule is not explicit, cases governing substituted service suggest that when service is done by certified mail, the defendant must actually sign the return receipt for service to be effective. If regular service is not effective, the plaintiff can file a motion supported by an affidavit stating the attempts to serve the defendant and where the defendant can "probably" be found. Upon a proper motion, the court may authorize substituted service by leaving the summons with a person over the age of 16 years at the location specified in the affidavit or "in any other manner, including electronically by social media, email or other technology, that the statement or other evidence shows will be reasonably effective to give the defendant notice of the suit." Tex.R.Civ.P. 106(b). Thus, Texas state court is the most restrictive for initial attempts at service but allows greater flexibility once service has been unsuccessful. Of course, substituted service is subject to court approval prior to service. The return of service must be on file for at least ten days prior to taking a default judgment. Tex.R.Civ.P. 107(h). In Texas state court, an answer is due by 10:00 a.m. on the Monday which is at least twenty days after service. Tex.R.Civ.P. 99(b). Comparing the Different RulesNon-bankruptcy practitioners and defendants are often surprised that a lawsuit can be served by placing the summons and the complaint in regular first class mail. Of the three methods for service, service by first class mail is the easiest to accomplish. However, because there is not a record of someone receiving the summons, it is easier for a defendant to dispute that they were actually served. Unless the plaintiff carefully researches where to serve the summons, it is possible to obtain ineffective service that may be set aside later. U.S. District Court and Texas state court both rely primarily on personal service and measure the answer date from the date of service. It is harder to serve a defendant in these cases but service, once obtained, is likely to stand up. There are a lot of permutations and special circumstances I did not discuss since I just wanted to hit the high points here. The U.S. government gets more time to answer in federal court and Texas has various forms of citation by publication to deal with unusual situations.
Tax liens in bankruptcy sometimes don’t stand up to close scrutiny, to the delight and profit of bankruptcy debtors. I was reminded of two such instances by the excellent presenters at the NACBA 2021 Workshop. Lien perfection follows state law The secret tax lien attaches to all of a taxpayer’s property of any kind, wherever […] The post Finding the Flaws in IRS Tax Liens appeared first on Bankruptcy Mastery.
I. Filing the Claim A proof of claim is a relatively simple form filed in a bankruptcy case which could result in recovery of anywhere from a small percent of your client’s debt to millions of dollars. In recent years, Debtor’s lawyers, Trustees, and Courts have all begun to scrutinize claims more closely. Congress got into the act when it revised Federal Rule of Bankruptcy Procedure 3001 to put more teeth into the rules regarding proof of claims. This paper will examine the proof of claim form, the Federal Rules of Bankruptcy Procedure, and recent case law to point out pitfalls and best practices. A. Signing/Submitting the Proof of Claim 1. Who Should Sign the Claim? Even though the signature on the proof of claim is the last item on the form, it is the first thing an attorney should think about. Note that a claim may be signed by the creditor or the creditor’s attorney or authorized agent. Since an attorney can sign a lawsuit on behalf of a client, shouldn’t the attorney be able to sign the proof of claim as well? Only if he or she likes living dangerously. The proof of claim requires the person signing to certify under penalty of perjury that “I have examined the information in this Proof of Claim and have a reasonable belief that the information is true and correct.” Does the typical attorney have personal knowledge of the contents of a proof of claim? No. In most cases, the attorney relies on his client to provide the information for the proof of claim. If the attorney signs the claim, the Debtor or Trustee could ask the attorney what information he relied on to file the claim. If the attorney replies that he received the information from his client, he may have waived the attorney-client privilege. It is almost always better for the client to sign the proof of claim. The one exception may be where the claim is based on a judgment obtained by the attorney. Even then, the attorney must rely on the client to verify that all credits and offsets have been applied. 2. Application of Rule 9011 to Filing Claims Even if the attorney knows enough not to sign the claim, the person submitting a claim does so subject to the representations contained in Fed.R.Bankr.P. 9011(b) as follows: By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances— (1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief. Thus, an attorney who signs a proof of claim has represented to the court that, after an inquiry reasonable under the circumstances, the allegations of the proof of claim have evidentiary support and are supported by existing law. An attorney who signs a proof of claim which, on its face, indicates that it is barred by limitations has violated Rule 9011. In re M.A.S. Realty Corp., 326 B.R. 31 (Bankr. D. Mass. 2005) serves as a powerful cautionary tale. In M.A.S., an attorney first asserted that his client had been damaged in the amount of $600,000 in a pleading some five months before the proof of claim was filed. During this time, the attorney requested supporting documentation and received only reassurances from his client that the claim was valid. After a hearing, the court found that the client had at best a potential claim for return of a deposit. The court found that the attorney violated Rule 9011 but could not be sanctioned because debtor’s counsel did not comply with the safe harbor provision of Rule 9011. In re Obasi, 2011 Bankr. LEXIS 5011 (Bankr. S.D. N.Y. 2011) is another case where failure to comply with the safe harbor provisions protected an attorney from sanctions. This case was particularly egregious. A litigation support company partly owned by the lawyer prepared the proof of claim. The attorney allowed his electronic signature to be affixed to the claim without ever having reviewed the claim. The Court found that this was a clear violation of Rule 9011 but that the U.S. Trustee had not complied with the safe harbor provisions. An attorney defending a motion for sanctions under Rule 9011(b) for submitting a proof of claim should be familiar with B-Line, LLC v. Wingerter (In re Wingerter), 594 F.3d 931 (6th Cir. 2010). Here, a claims buyer filed claims without ever receiving the originating documents from its seller. However, the company received warranties from the selling company that the claim was valid and only two out of 1,017 claims purchased from the seller had been successfully challenged. In these circumstances, the Court of Appeals found that B-Line had conducted an inquiry sufficient to withstand Rule 9011(b). 3. Robo-Signing The claim form contains a representation that states, “I have examined the information in this Proof of Claim and have a reasonable belief that the information is true and correct.” What if the creditor used an automated process to sign claims so that the person whose name is affixed to the claim never reviewed it? In two separate cases, the U.S. Trustee brought enforcement actions against a creditor accused of robo-signing. Casamatta v. Resurgent Capital Services, LP (In re Freeman-Clay), 578 B.R. 423 (Bankr. W.D. Mo. 2017); Resurgent Capital Services, LP v. Harrington (In re Cushman), 589 B.R. 469 (Bankr. D. Me. 2018). In the Freeman-Clay case, it was alleged that thousands of claims had been filed bearing the electronic signature of a Resurgent employee who had not actually reviewed the claims. On Resurgent’s motion to dismiss, the Court stated, “(a)n individual with no personal involvement in the preparation of the claim cannot make the attestation required by (Rule 3001) and by the language of the form itself.” Notwithstanding this violation, the Court dismissed this count of the complaint because the U.S. Trustee had not alleged that Resurgent acted in bad faith and had not alleged that any party had been damaged by the practice. In the Cushman case, the U.S. Trustee sought sanctions under Rule 9011 based on “the practice of affixing an employee’s signature to a proof of claim and then filing the proof of claim, all without prior review of the proof of claim by that employee.” Resurgent admitted that this was not a “best practice” and represented to the Court that it had abandoned the practice. The case has an interesting discussion as to who the person was who made the applicable representations under Rule 9011: was it Susan Gaines, the Resurgent employee whose electronic signature appeared on the claim or was it Resurgent itself? There was no attorney involved in filing the claim so that option was not present. The Court concluded that Resurgent was the entity making the Rule 9011 representations rather than the specific employee whose signature was placed on the claim. The Court then analyzed whether Resurgent had made a reasonable pre-filing inquiry. Based on an extensive review of Resurgent’s automated practices and the information that it received from debt sellers, the court found that Resurgent engaged in a reasonable pre-filing inquiry notwithstanding the fact that its employee who signed the claim could not make the requisite representation. The characterization of affixing the signature of an employee who had not reviewed the claim as not a “best practice” is an understatement. The fact that sanctions were not imposed in these cases is remarkable. A compelling case could have been made that it was bad faith for Resurgent to allow an employee to affix her signature to thousands of proofs of claim without ever having reviewed them. These are a pair of head scratching cases. B. Supporting Documents Official Form 410 states that filers should “(a)ttach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, judgments, mortgages and security agreements.” This obligation is reinforced by Fed.R.Bankr.P. 3001(c)(1) which states that: (c) Supporting Information. (1) Claim Based on a Writing. Except for a claim governed by paragraph (3) of this subdivision, when a claim, or an interest in property of the debtor securing the claim, is based on a writing, a copy of the writing shall be filed with the proof of claim. If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim. This raises an important question. When is a claim based on a writing? Obviously, a claim based on a promissory note or a sworn account is based on a writing. What about a claim based on an oral contract? In that case, there would not be a document that forms the basis for the claim and the claim can be prima facie valid without attaching any documents. In re Archuleta, 2021 Bankr. LEXIS 609 (Bankr. D. N.M. 2021). Even if a claim is based on a writing, some claims do not require supporting documentation. Under Fed.R.Bankr.P. 3001(c)(3), there is an exception for claims arising from open-end or revolving consumer credit agreements: (3) Claim Based on an Open-End or Revolving Consumer Credit Agreement. (A) When a claim is based on an open-end or revolving consumer credit agreement — except one for which a security interest is claimed in the debtor’s real property — a statement shall be filed with the proof of claim, including all of the following information that applies to the account: (i) the name of the entity from whom the creditor purchased the account; (ii) the name of the entity to whom the debt was owed at the time of an account holder’s last transaction on the account; (iii) the date of an account holder’s last transaction; (iv) the date of the last payment on the account; and (v) the date on which the account was charged to profit and loss. While the rule excuses failure to attach supporting documents, Rule 3001(c)(3)(B) requires that the documents must be provided upon a proper request. (B) On written request by a party in interest, the holder of a claim based on an open-end or revolving consumer credit agreement shall, within 30 days after the request is sent, provide the requesting party a copy of the writing specified in paragraph (1) of this subdivision. The proof of claim form has a trap for the unwary creditor who wishes to take advantage of the summary in lieu of supporting documents provision. Box 8 asks for the basis of the claim. If a creditor describes the claim as a payday loan but relies on the Rule 3001(c)(3)(B) summary exception, the claim is internally inconsistent. Payday loans are not “open-end or revolving consumer credit agreements.” Ellswick v. Quantum3 Group, LLC, 2018 U.S. Dist. LEXIS 45991 (N.D. Ala. 2018). In the Ellswick case, the creditor filed a claim based on a payday loan but used the Rule 3001(c)(3)(B) summary rather than attaching supporting documents. The debtor sued under the Fair Debt Collection Practices Act contending that the assertion that the claim was an open-ended credit was a false representation. The Bankruptcy Court dismissed for failure to state a claim, but the District Court reversed and remanded the case to proceed.Creditors should not fall into the trap of using the summary and then proving that they were not entitled to use the summary only. To summarize, Fed.R.Bankr.P. 3001 has three requirements: (a) There is a general rule to attach supporting documents for a claim based on a writing; (b) There is an exception to provide a summary with five specific data points; and (c) If the exception applies, the claimant must provide the supporting documents on written request within 30 days. Rule 3001 contains one provision which directly addresses failure to attach required documents and one which addresses it indirectly. Rule 3001(c)(2)(D) provides that: (D) If the holder of a claim fails to provide any information required by this subdivision (c), the court may, after notice and hearing, take either or both of the following actions: (i) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or (ii) award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure. This provision states that if a party fails to include the relevant information, the Court can exclude the omitted information unless the failure to do so was substantially justified or harmless. If a party makes a mistake, it can’t go back and cure unless there was a really good reason or the omission was harmless. The Court can also “award other appropriate relief,” which includes attorney’s fees. This can be harsh. There are cases in which a creditor failed to supply initial documents leading to a claim objection and subsequently provided those documents. In some cases, the courts have allowed the claim but imposed sanctions for the original failure to provide documents. In re Ball, 2019 Bankr. LEXIS 179 (Bankr. E.D. Mich. 2019); In re Milliman,2018 Bankr LEXIS 858 (Bankr. D. Kan. 2018). In other cases, the courts have refused to allow the omitted documents into evidence resulting in denial of the claim. In re Jimenez, 487 B.R. 543 (Bankr. D. Col. 2013). This applies also to failure to provide documents evidencing an open-end claim after a proper request. Snedeker v. PYOD, LLC, 2018 Bankr. LEXIS 2184 (Bankr. M.D. Pa. 2018). However, failure to provide requested documents will not invalidate a claim where the debtor has failed to articulate a reason why the claim should be denied. In re Isherwood, 2019 Bankr. LEXIS 507 (Bankr. D. Md. 2019). Even if a creditor fails to attach supporting documentation, the claim may be allowed if it matches a debt contained in the debtor’s schedules. In re Napier, 2018 Bankr. LEXIS 1505 (Bankr. W.D. Va. 2018). There is a trend among some debtor’s lawyers to object to allowance of a claim and to request an award of fees. Many creditors make a cost-benefit analysis in deciding whether to respond to a claims objection. Say that a creditor files a claim for $300 in a Chapter 13, case which will pay 10% to creditors. If the claim is allowed and the plan makes it to completion, the creditor will recover $30. If the debtor objects to the claim and it would cost the creditor anything more than $30 to respond, it would not make economic sense to reply. However, if the claims objection includes a request for attorneys’ fees of $500, failure to respond can get expensive. Many courts recognize that there is not an automatic entitlement to attorneys' fees for objecting to a proof of claim. In Case No. 17-30175, In re Andrade, (Bankr. S.D. Tex. 12/4/20), Dkt. #85, a debtor objected to a claim based on the statute of limitations and requested attorneys' fees. The creditor filed a response which conceded the objection but disputed the debtor's entitlement to attorneys' fees. Prior to the date set for hearing, the Court sustained the objection but stated, "the Court finds no basis for an award of attorneys' fees to the debtor." When faced with a request for attorneys' fees in connection with a claims objection, creditors should check to see whether the Debtor's attorney entered into a "no look" fee agreement with the debtor. Under the local rules in many districts, the services included in a "no look" fee include objecting to claims if necessary. If the Debtor's attorney has already been compensated for objecting to claims, there should not be a basis for additional compensation for this service. C. Disclosing Additional Charges Box 7 of the claim form asks for the amount of the claim and whether the amount includes interest or other charges. If a claim includes additional charges and the creditor fails to check this box, then the creditor has made a false statement under penalty of perjury. While this appears to be a fairly innocuous provision, it has given rise to substantial litigation. In re Derby, 2019 Bankr. LEXIS 945 (Bankr. E.D. Va. 2019); Brooks v. Midland Funding, LLC (In re Thomas), 592 B.R. 99 (Bankr. W.D. Va. 2018); In re Maddux, 2016 Bankr. LEXIS 4116 (Bankr. E.D. Va. 2016). In each of these cases, the allegation was that a claims purchaser filed a claim which checked the box “No” for whether the claim included interest or other charges. The claims buyers argued that under industry rules, they were allowed to roll other fees into the principal balance. In Maddux, the Court consolidated fifteen claims objections in six separate chapter 13 cases where a debt buyer originally claimed that no interest or other charges were included. After the debtor objected to the claims, the creditor amended the claims to supply the required information. The court found that failure to include the required information meant that the claims were not entitled to prima facie validity, but nevertheless, found that the creditor met its burden to prove up the claims and denied the objections. However, based on Rule 3001(c)(2)(D), the Court found that the initial failure to provide the itemization of fees and expenses was not substantially justified and awarded attorneys’ fees to the debtor’s attorneys. The Court ultimately awarded $219,986.00 in fees and $8,876.82 in expenses to the debtors’ counsel. In Brooks v. Midland Fundingand In re Derby, the Debtors sued creditors for violations of the FDCPA based on their failure to itemize interest and other charges in proofs of claim. In both cases, the creditor sought to have the complaint dismissed for failure to state a cause of action. In Brooks v. Midland Funding, the Court found that a complaint alleging that the creditor had a business practice of filing false claims stated a cause of action under the FDCPA. In Derby, the Court dismissed the FDCPA claim and found that the appropriate remedy was contained in Rule 3001(c)(2)(D). The takeaway is that in both cases the Court allowed claims to proceed against creditors for failure to itemize interest and other charges. The creditor received a more favorable ruling in Arcila v. Portfolio Recovery Associates, 2021 U.S. Dist. LEXIS 54388 (D.N.J. 2021). In Arcila, the creditor filed a proof of claim which did not disclose fees and charges. The debtor did not object to the claim but later brought suit under the FDCPA. The debtor did not dispute the total amount of the claim. The District Court found that the FDCPA claim was barred by issue preclusion. Where the debtor had an opportunity to object to the claim and did not, it could not make a collateral attack on the proof of claim under the FDCPA. D. Redacting Personal Information The instructions to the claim form require creditors to redact “information that is entitled to privacy on this form or on any attached documents.” Under Fed.R.Bankr.P. 9037(a): (a) Redacted Filings. Unless the court orders otherwise, in an electronic or paper filing made with the court that contains an individual's social-security number, taxpayer-identification number, or birth date, the name of an individual, other than the debtor, known to be and identified as a minor, or a financial-account number, a party or nonparty making the filing may include only: (1) the last four digits of the social-security number and taxpayer-identification number; (2) the year of the individual's birth; (3) the minor's initials; and (4) the last four digits of the financial-account number.A claim based on private school tuition, might include the full name of a minor as well as a full account number. A claim for child support could include the child’s name and birth year. Additionally, a claim for medical expenses could include information which may not be disclosed under HIPAA. All of these are instances in which a claimant can violate the law by filing an unredacted proof of claim. Courts are divided over whether a debtor may sue for disclosure of information required to be redacted. In In re Branch, 2016 Bankr. LEXIS 3194 (Bankr. E.D. N.C. 2016), a healthcare provider filed many proofs of claim which included the patients’ full social security numbers and account numbers. Three debtors filed motions for sanctions and to restrict public access. In response to the motions, the provider moved to restrict access to an additional 2,819 claims in closed cases and 1,390 claims in open cases. It also offered the debtors one year of creditor monitoring. At the hearing on the motions, a representative of one of the creditors testified that she had not received any training in how to redact information from claims, did not have any contact with the provider’s legal department and did not have anyone reviewing the claims that she filed. The company’s Chief Legal Officer, who was hired shortly before the first motion for sanctions was filed, testified that she did not have any training with regard to redacting claims and had not appeared in federal court in nineteen years (which was before electronic filing was adopted). However, upon receiving the motions to restrict access and for sanctions, she launched an investigation and initiated remedial measures. The creditor testified that it had spent over $300,000 in addressing the problem. The court noted that Fed.R.Bankr.P. 9037 does not provide a private right of action for failure to redact. However, it concluded that it could sanction parties for contempt under 11 U.S.C. §105 where “it was shown that a creditor flaunted the law with knowledge of its proscriptions, failed to take remedial action once violations were discovered, or acted deliberately as opposed to mistakenly or inadvertently.” The Court found that the creditor did not act intentionally to flaunt the law but was “more than negligent.” The Court found that the creditor failed to take prompt remedial action because it took four weeks from receiving notice of the problem before it acted. The Court awarded actual and punitive damages of $21,140.69 to two debtors, attorneys’ fees of approximately $59,000 and ordered that sanctions in the amount of $50,000 be paid to the Clerk of the Court. All in all, the failure to redact proofs of claim cost the creditor close to half a million dollars (including the costs incurred by the creditor to fix its practices). In re Lunden, 524 B.R. 410 (Bankr. D. Mass. 2015) is a case where an attorney attached a financial statement to a pleading filed in court. The document contained the debtor’s full social security number, home telephone number, address and date of birth. The attorney refused to withdraw the offending document and attempted to justify its use. The Debtor’s attorney moved to strike the document from the public record and for sanctions. The Court granted the motion to strike the document pursuant to Fed.R.Bankr.P. 9037 and set a hearing on sanctions. The Court rejected the argument that the document was part of the public record in an earlier state court proceeding because it was designated as confidential and kept out of the public record in that proceeding. The Court found that although Rule 9037 does not contain a private right of action, the Court could sanction contemptuous behavior under 11 U.S.C. §105(a). The Court stated: The mere failure to redact may not always give rise to sanctions for contempt. But in this case, when the error was brought to his attention, Attorney Chernin refused to take any corrective action and then defended his failures with ex post facto excuses bordering on the frivolous. The court ordered the attorney to pay for credit monitoring for the debtor in the future and also to pay $1,000 in punitive damages. While this case involved a pleading instead of a proof of claim, it involves a scenario which can frequently arise with regard to proofs of claim. The two cases above can be contrasted with Cordier v. Plains Commerce Bank (In re Cordier), 2009 Bankr. LEXIS 888 (Bankr. D. Ct. 2009) where the creditor had only a single violation and acted promptly to redact the claim. In Cordier, the creditor filed a proof of claim which included the Debtor’s unredacted social security number. Rather than requesting the creditor to redact the number, the Debtor filed an adversary proceeding against the creditor. Upon receiving the adversary proceeding, the creditor promptly moved to restrict the claim from public viewing under Fed.R.Bankr.P. 9037. The creditor then moved to dismiss the adversary proceeding. The Court granted the motion to dismiss, finding that the remedy created by Rule 9037 is to remove the offending document from public view. However, it did not create a private cause of action. The lesson from these two cases is that if you accidentally file a claim with: (a) the full social security number; (b) the debtor’s birth date; or (c) the full name of a minor child or a full account number, you should promptly file a motion to withdraw the document from the public record. This is a motion that can be granted on an ex parte basis. E. Other Grounds for Imposing Liability Based on Submitting a Proof of Claim The Supreme Court has ruled that a debtor cannot bring an action under FDCPA based on filing a claim which is beyond the statute of limitations. Midland Funding, LLC v. Johnson, 137 S.Ct. 1407 (2017). However, there are plenty of other situations in which filing a proof of claim can result in liability to the creditor. 1. Filing Non-Existent Claims On February 5, 2016, Bankruptcy Judge Marvin Isgur initiated a Miscellaneous Proceeding where three creditors were ordered to show cause why they should not be sanctioned based on claims they had filed. In particular, the court was concerned with “a series of claims (often in the amount of $390) without supporting documentation or otherwise not in compliance with the Federal Rules of Bankruptcy Procedure.” In re Atlas Acquisitions, LLC, et al, Misc. Pro. No. 16-302 (Bankr. S.D. Texas). The ensuing investigation revealed that a broker had purchased a batch of purported payday loans and then sold them to a debt buyer who in turn resold a portion of them to another debt buyer. Once the two debt buyers began filing claims, they began to draw objections leading to the court’s issuance of the show cause order. Eventually, it was revealed that an unscrupulous actor had taken a database of personal information submitted by persons applying for payday loans, put them into a spreadsheet and represented that they were real debts. Because the broker and the debt buyers cooperated with the Bankruptcy Court’s inquiry, the Court did not impose sanctions beyond a payment to reimburse the Chapter 13 trustee for his expenses. The fraudster was not so lucky. On July 13, 2021, he was convicted on multiple grounds including two counts of bankruptcy fraud and sentenced to 150 months of confinement. He was also ordered to pay restitution in the amount of $8,057,079.95. Case No. 4:18-cr-00153-RK, United States of America v. Joel Jerome Tucker (W.D. Mo. 7/13/21), Dkt. #61. The case is a lesson that creditors should perform due diligence before filing a claim purchased from a third party. If the claim does not exist, it can get very expensive. 2. Submitting and Continuing to Pursue a False Claim In Grossman v. Wehrle (In re Royal Manor Mangagement), 2016 U.S. App. LEXIS 11018 (6th Cir. 2016), a pro se creditor named Gertrude Gordon submitted a proof of claim. The claim relied on a redacted agreement. The Committee objected and the objection was granted when the claimant did not reply. Attorney Grossman then appeared on behalf of Gertrude and sought reconsideration. Reconsideration was denied and the creditor appealed. The unredacted claim revealed that the debt was owed by a third party and not by the debtor. The District court denied the appeal and Grossman then appealed to the Sixth Circuit. The Sixth Circuit affirmed. The Trustee moved for sanctions on the basis that “there was no credible evidence or legal basis to support that the Gordons were general unsecured creditors of . . . any . . . debtor entity, yet Gertrude and Grossman continued to file frivolous pleadings to vexatiously multiply the proceedings.” Gertrude settled with the Trustee for $50,000. The Bankruptcy Court awarded sanctions against Grossman in the amount of $207,004. The Sixth Circuit affirmed, finding that Grossman obtained the unredacted document early in his representation but continued to press forward on the claim. 3. Submitting an Inaccurate Claim. Ameriquest Mortg. Co. v. Nosek (In re Nosek), 609 F.3d 6 (1st Cir. 2010) is a good illustration of how serious a simple error can be, although the ultimate sanction was drastically reduced on appeal. Ameriquest originated a mortgage loan which was assigned to a securitization trust but retained the servicing rights. After the debtor filed for bankruptcy, Ameriquest filed a proof of claim and a motion to lift stay indicating that it was the creditor as opposed to the servicing agent for the creditor. The debtor sued Ameriquest over its handling of the mortgage loan and received a judgment for $250,000 which was reversed and remanded. On remand, the bankruptcy court awarded $750,000 in damages. The $750,000 judgment was also reversed. However, prior to the judgment being reversed, Ameriquest disclosed that it did not hold the mortgage. The bankruptcy court issued an order to show cause as to why Ameriquest should not be sanctioned under Fed.R.Bankr.P. 9011 for misrepresenting its status as holder of the note. The bankruptcy court imposed sanctions of $250,000. On appeal, Ameriquest admitted that its proof of claim violated Rule 9011 but argued that the sanction was too high. The Court of Appeals agreed and reduced the sanction to $5,000. 4. Submitting a Claim on a Discharged Debt Green Point Credit, LLC v. McLean (In re McLean), 794 F.3d 1313 (11th Cir. 2015) involved a creditor which submitted a claim in a bankruptcy proceeding even though it had been discharged in a prior case. In 2006, the debtors filed a Chapter 13 proceeding which was converted to chapter 7. They received a discharge. Green Point was listed as a creditor and received notice of the discharge. In 2012, the debtors filed a second Chapter 13 case. Although Green Point was not scheduled as a creditor, it filed a proof of claim. If the claim had been allowed, the debtors’ payments under the plan would have doubled. The debtors objected to the claim and also filed an adversary proceeding. Four days after the adversary proceeding was filed, Green Point withdrew the proof of claim. The bankruptcy court ruled that filing a proof of claim on a discharged debt violated the discharge injunction in the prior case. It also awarded punitive sanctions in the amount of $50,000 and compensatory sanctions for emotional distress. On appeal, the Eleventh Circuit affirmed the finding that the proof of claim violated the discharge. However, it vacated and remanded the two awards of sanctions. The Court found that the bankruptcy court did not consider whether Green Point acted with reckless disregard when it filed the proof of claim. It also found that the bankruptcy court did not perform the proper analysis for awarding damages for emotional distress. The Eleventh Circuit remanded the case for a new hearing on damages. II. Objecting to Claims A claim shall be allowed unless a party in interest objects to it. 11 U.S.C. Sec. 502(a), In re WMC Kim Holdings, LLC, 2021 Bankr. LEXIS 352 (Bankr. N.D. Ga. 2021). Objections to claims are governed by 11 U.S.C. Sec. 502 and Fed.R.Bankr.P. 3007 as well as various local rules. The starting point to an objection is determining whether the claim has prima facie validity. A. Rebutting Prima Facie Validity and Burden of Proof Under Fed.R.Bankr.P. 3001(f), "(a) proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim." If a claim is entitled to prima facie validity, the objecting party must submit sufficient evidence to rebut the prima facie validity of the claim. On the other hand, if the claim is not entitled to prima facie validity, all the objecting party need do is say "I object." What is enough evidence to rebut the prima facie validity? "(T)he objector must produce evidence equal in force to the prima facie case which, if believed, would refute at least one of the allegations that is essential to the claim's legal sufficiency." In re Defeo, 2015 Bankr. LEXIS 4031 (Bankr. E.D. N.Y. 2015) at *7. Another court has referred to "evidence of a probative force equal to that of the creidtor's proof of claim." In re Bryant, 600 B.R. 533 (Bankr. N.D. Tex. 2019), aff'd, 2020 U.S. Dist. LEXIS 169388 (N.D. Tex. 2020). While the amount of evidence sufficient to rebut the presumption is not great, it must consist of more than disagreeing with the claim. Once the prima facie validity has been rebutted, the burden of proof to sustain the claim falls upon the party that would have the burden under applicable non-bankruptcy law. Raleigh v. Illinois Dept. of Revenue, 528 U.S. 1068 (U.S. 2000). While this will generally place the burden on the claimant, some laws, such as tax laws, will place the burden on the objecting party. B. What Are Valid Grounds to Object? Most courts agree that the only grounds for objecting to a claim are those listed in 11 U.S.C. Sec. 502(b). In re Today’s Destiny, Inc., 2008 Bankr. LEXIS 3577 (Bankr. S.D. Tex. 2008). Sec. 502(b) provides: (b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that-- (1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured; (2) such claim is for unmatured interest; (3) if such claim is for a tax assessed against property of the estate, such claim exceeds the value of the interest of the estate in such property; (4) if such claim is for services of an insider or attorney of the debtor, such claim exceeds the reasonable value of such services; (5) such claim is for a debt that is unmatured on the date of the filing of the petition and that is excepted from discharge under section 523(a)(5) of this title; (6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds-- (A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of-- (i) the date of the filing of the petition; and (ii) the date on which such lessor repossessed, or the lessee surrendered, the leased property; plus (B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates; (7) if such claim is the claim of an employee for damages resulting from the termination of an employment contract, such claim exceeds-- (A) the compensation provided by such contract, without acceleration, for one year following the earlier of-- (i) the date of the filing of the petition; or (ii) the date on which the employer directed the employee to terminate, or such employee terminated, performance under such contract; plus (B) any unpaid compensation due under such contract, without acceleration, on the earlier of such dates; (8) such claim results from a reduction, due to late payment, in the amount of an otherwise applicable credit available to the debtor in connection with an employment tax on wages, salaries, or commissions earned from the debtor; or (9) proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1) , (2) , or (3) of section 726(a) of this title or under the Federal Rules of Bankruptcy Procedure, except that a claim of a governmental unit shall be timely filed if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide, and except that in a case under chapter 13, a claim of a governmental unit for a tax with respect to a return filed under section 1308 shall be timely if the claim is filed on or before the date that is 60 days after the date on which such return was filed as required.The most common objection would be that the claim is unenforceable against the debtor or the property of the debtor which is just a fancy way of saying the debtor doesn't owe the money. Notably, this list does not include failure to include supporting documentation. Failure to include required documentation may result in a claim losing prima facie validity. However, it is not a ground in and of itself for denying the claim. In re Andrade-Garcia, 627 B.R. 158 (Bankr. D. Nev. 2021); In re Isherwood, 2019 Bankr. LEXIS 507 (Bankr. D. Md. 2019); In re Rodriguez, 2018 Bankr. LEXIS 3742 (Bankr. E.D. Wis. 2018); In re Gorman, 495 B.R. 823 (Bankr. E.D. Tenn. 2013). That being said, there is a backdoor way to get to that result. Rule 3001(f) states that a proof of claim filed in accordance with the rule is entitled to prima facie validity. This shifts the burden to the objecting party to rebut the prima facie case before the creditor is required to prove that the claim should be allowed. However, if supporting documents are not attached, the claim has no prima facie validity and the creditor bears the burden of supporting the claim. Let’s say that a creditor files a claim based on a Cash Express payday loan but fails to attach supporting documentation. If the debtor objects and states that he doesn’t remember ever having a Cash Express payday loan or that he did have one, but paid it off, the burden shifts to the creditor to prove up the claim. However, the creditor may be precluded from offering the omitted documents. As a result, the rule granting prima facie validity to properly filed claims makes it easier to object to deficient claims. A claim may also be denied because it is late-filed. In Chapter 11, the Court may allow a late-filed claim based on excusable neglect. Pioneer Investment Serv. Co. v. Brunswick Assocs., Ltd. P'ship, 507 U.S. 380 (U.S. 1993). However, late filed claims are not allowed in Chapter 12 or Chapter 13. In re Moore, 2021 Bankr. LEXIS 2849 (Bankr. N.D. Ia. 2021). One exception to this rule is that the debtor or trustee may file a claim for a creditor within 30 days after the expiration of the deadline to file a claim. Fed.R.Bankr.P. 3004. In a Chapter 7 case, there is not a deadline to file a claim unless the trustee files an asset notice. However, if a claim is filed after the expiration of the bar date, it can still be allowed although it will be subordinated to all timely filed claims. 11 U.S.C. Sec. 726(a)(3). One objection which is used more often than it should be is "the claim does not comport with the debtor's books and records." As Judge Marvin Isgur pointed out at the recent Westbrook Bankruptcy Conference, which books and records did you review? Is this the type of claim that would even appear on the debtor's books and records? The problem with the objection is that it doesn't tell the creditor what the problem is. Do the debtor's books and records list the claim, but in a different amount? If the debt is not listed in the debtor's books and records, how accurate are those books and records? A better objection would be any of the following: The debtor does not have any record of having done business with this creditor; The debtor's records indicate that the lesser amount of x should be allowed; or The debt is not owed by this debtor. Other examples of good objections would be that the debt is barred by limitations, In re Andrade-Garcia, 627 B.R. 158 (Bankr. D. Nev. 2021), the claim is barred by res judicata, the claim is actually an equity interest, In re Live Primary, LLC, 626 B.R. 171 (Bankr. S.D. N.Y. 2021), or the claim has been paid. In short, an objection to claim may be based on any defense that could have been raised to the claim if the creditor had filed suit in an appropriate non-bankruptcy court. C. Omnibus Objections to Claim Fed.R.Bankr.P. 3007(c), (d) and (e) govern omnibus objections to claims. The general rule is contained in Rule 3007(c) which states that unless ordered by the court or allowed by subsection (d), an objection to claim may only include a single claim. The purpose of an omnibus objection is to allow determination of a group of similar claims in an economical manner. Rule 3007(d) allows similar objections to be filed together if they fall within one of the following categories: (1) they duplicate other claims; (2) they have been filed in the wrong case; (3) they have been amended by subsequently filed proofs of claim; (4) they were not timely filed; (5) they have been satisfied or released during the case in accordance with the Code, applicable rules, or a court order; (6) they were presented in a form that does not comply with applicable rules, and the objection states that the objector is unable to determine the validity of the claim because of the noncompliance; (7) they are interests, rather than claims; or (8) they assert priority in an amount that exceeds the maximum amount under §507 of the Code. However, because Rule 3007(c) allows omnibus objections to be filed as "otherwise ordered by the court," it is possible to file omnibus objections for other groups of similar claims if prior approval is obtained from the court. The types of omnibus objections allowed are generally ones that do not require extensive factual review. For example, if duplicate claims have been filed, it is enough to identify two claims from the same creditor for the same debt. For a late filed claim, it is sufficient to show the bar date and when the claim was filed. In contrast, it should not be adequate to file an omnibus objection based on the fact that the claim does not appear in the debtor's books and records. There can be many different reasons why a claim does not appear in the debtor's books and records and due process will require the objecting party to provide more information to rebut the prima facie validity of the claim. An omnibus objection must meet six requirements under Rule 3007(e). It must: (1) state in a conspicuous place that claimants receiving the objection should locate their names and claims in the objection; (2) list claimants alphabetically, provide a cross-reference to claim numbers, and, if appropriate, list claimants by category of claims; (3) state the grounds of the objection to each claim and provide a cross-reference to the pages in the omnibus objection pertinent to the stated grounds; (4) state in the title the identity of the objector and the grounds for the objections; (5) be numbered consecutively with other omnibus objections filed by the same objector; and (6) contain objections to no more than 100 claims. These form requirements are designed to ensure that a creditor receives reasonable notice to understand that their claim is being objected to, why the claim is being objected to, and what they need to do to respond. As a debtor's lawyer, I have used omnibus objections. Sometimes we may file an omnibus objection to just four or five claims. What I find frustrating as a creditor's lawyer is receiving dozens of omnibus objections and having to click on the link and scroll through many lines of small print. Where a creditor is represented by an attorney who has appeared, it is arguably sufficient to serve the creditor's attorney through CM/ECF. However, the best practice is to always serve the omnibus objection on the creditor at its notice address in the claim and also notify the claimant's attorney. III. Summary of Relevant Rules and Statutes A. Statutes 11 U.S.C. Sec. 501 governs filing claims 11 U.S.C. Sec. 502 governs objections to claims B. Rules Fed.R.Bankr.P. 3001 governs filing proofs of claim and the requirements for a proof of claim Fed.R.Bankr.P. 3004 governs filing of proofs of claims by the Debtor or Trustee Fed.R.Bankr.P. 3007 governs objections to claims, including omnibus objections Fed.R.Bankr.P. 3008 governs reconsideration of claims Note: Part One of this article is based on a presentation I gave to the Commercial Law League of America in 2019. Part Two was inspired by a presentation given at the 2021 Westbrook Bankruptcy Conference and includes some comments from the conference. That presentation was given by Elizabeth Freeman, Julie Harrison and Erin McKeighan with assistance from Judges Marvin Isgur, David Jones and Chris Lopez.
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