Depending on the type of bankruptcy case, either Rule 3002 or Rule 3003 of the Federal Rules of Bankruptcy Procedure (the “Rules”) will govern whether and when you, as a potential creditor, secured or unsecured, need to file a proof of claim.  Rule 3002 governs the filing of a proof of claim in chapter 7, 12, and 13 cases; Rule 3003 governs the filing of a proof of claim in chapter 9 and 11 cases.  This article provides an overview of Rule 3002 and its upcoming changes, an overview of Rule 3003, and a discussion of some common pitfalls for creditors regarding the claims process in general.

Rule 3002(a) (Chapter 7, 12, And 13 Cases)

On December 1, 2017, several amendments to Rule 3002 will take effect that will impact both the requirements and deadlines for filing a proof of claim in chapter 7 (individual and business liquidation), 12 (family farmer/fisherman), and 13 (individual consumer reorganization) bankruptcy cases.  These amendments will affect creditors for all chapter 7, 12, and 13 cases filed on or after December 1, 2017.

  • The Requirement To File A Proof Of Claim: Pre- And Post-December 1, 2017

Under the pre-December 1, 2017 version of Rule 3002(a), only two types of creditors are required to file a proof of claim: unsecured creditors and equity owners.  Secured creditors are not required to file a proof of claim.

Starting December 1, 2017, Rule 3002(a) will require all creditors in chapter 7, 12, and 13 cases to file a proof of claim.  The purpose of this change is to address issues that have arisen where secured creditors have failed to file a proof of claim in such cases.

  • Consequences For Not Filing A Proof Of Claim

Under both versions of Rule 3002(a), the failure of an unsecured creditor to file a proof of claim has the same result: the creditor would not receive a distribution from the debtor’s estate.  In contrast, the pre-December 1, 2017 version of Rule 3002(a) did not clearly delineate what happened to a secured creditor’s claim if it failed to file a proof of claim.  As a result, courts disagreed over how to treat a secured creditor that failed to file a proof of claim.

For instance, courts have struggled with reconciling section 506(d) of the Bankruptcy Code with Rule 3002(a).  Section 506(d) of the Bankruptcy Code provides that the failure to file a proof of claim does not void the secured creditor’s lien on the property securing its claim.  Consequently, most courts have held that if a secured creditor failed to file a proof of claim, its lien against a piece of property would nonetheless attach to the proceeds of the sale of that property.   Some courts, however, have held that a failure to file a proof of claim may, in fact, cause the secured creditor to lose its lien against the property.

Another issue has arisen where a creditor that is undersecured – e.g., where the amount of a secured creditor’s claim exceeds the value of the property securing the claim – failed to file a proof of claim.  Given that only a portion of its claim is secured, the undersecured creditor should have filed a proof of claim for at least the unsecured portion of its claim – i.e., the amount of the claim in excess of the value of the property.  However, such undersecured creditors have often failed to file the proof of claim required of unsecured creditors and therefore have been denied a distribution on the unsecured portions of their claims.

The amendments to Rule 3002(a) are intended to address and provide clarity regarding such issues.  In particular, starting December 1, 2017, all creditors, including a secured creditor, must file a proof of claim in order to have an allowed claim in chapter 7, 13, or 12 bankruptcy cases.  The imposition of this additional requirement upon secured creditors could serve to help them by reducing the likelihood of total loss on any portions of their claims that prove to be unsecured.  Rule 3002(a) was further amended to reflect the provisions in section 506(d) of the Bankruptcy Code, specifically to clarify that a secured creditor’s failure to file a proof of claim does not void its lien.

  • When To File: Pre- And Post-December 1, 2017

The amendments to Rule 3002 also impact the calculation of the deadline to file a proof of claim in chapter 7, 12, and 13 cases.  In voluntary chapter 7 and chapter 12 and 13 cases, Rule 3002(c) previously calculated the deadline to file a proof of claim as 90 days after the section 341 meeting of creditors, which usually occurred 30 or more days after the case-filing date.  Under the amendments, the deadline is now shortened to 70 days after the case-filing date.

Similarly, the deadline for filing a proof of claim in an involuntary chapter 7 has also been changed.  Previously, the deadline to file a proof of claim was 90 days after the section 341 meeting of creditors.  Under the amendments, the deadline is now 90 days after entry of the order for relief – i.e., the day the court approves the involuntary filing.

In addition, Rule 3002(c) now imposes a clear deadline for filing a proof of claim when a case is converted from another chapter, e.g., from chapter 11 to a chapter 12 or 13 case.  The new deadline is 70 days after entry of an order converting the case to a chapter 12 or 13 case.  The changes to Rule 3002(c) regarding when a case is converted are important, particularly when a case is converted from a chapter 11, because as discussed below, chapter 11 cases have different deadlines and requirements for filing a proof of claim.

Rule 3003 (Chapter 9 And 11 Cases)

The existing Rule 3003 governing the requirement to file a proof of claim in chapter 9 and 11 cases will remain unaffected following the amendments taking effect on December 1, 2017.  Nonetheless, the requirements for whether and when to file a proof of claim in chapter 9 and 11 cases are not straightforward and require diligence and attention to the debtor’s filings with the court, as well as any applicable court orders.

  • The Requirement To File

In general, under Rule 3003 a creditor is not required to file a proof of claim in a chapter 9 or 11 reorganization case if the debtor lists that creditor on its schedule of liabilities and the creditor’s claim is listed as undisputed, not contingent, and liquidated.  In contrast, a creditor must file a proof of claim if the debtor does not list the creditor’s claim on the schedule of liabilities or the claim is listed as disputed, contingent, and/or liquidated.  Similar to Rule 3002, the failure to file a proof of claim, if one is required, will prevent the creditor from receiving a distribution from the debtor’s estate.  In addition, the failure to file a proof of claim, whether or not required, can impact the creditor’s other rights in a chapter 9 or 11 case.

In a chapter 9 or 11 case, the goal is for the debtor to reorganize its affairs.  As such, the debtor is required to propose a plan explaining how it will reorganize its affairs and pay its creditors.  With some exceptions, creditors are generally entitled to vote on the plan.  One of those exceptions occurs, however, where the creditor is required to file a proof of claim under Rule 3003 and fails to file such a claim.  Consequently, where a creditor that is required to file a proof of claim fails to do so, it loses its ability to have a say in how the debtor reorganizes its affairs.

Even if the creditor is not required to file a proof of claim, the creditor should generally file a proof of claim.  Under Rule 3003, the debtor’s schedule of liabilities is prima facie – correct until proven otherwise – evidence of the creditor’s claim.  In other words, if a debtor lists you as an unsecured creditor with a $100,000 claim, but you are actually a secured creditor with a $100,000 claim, unless you file a proof of claim you could be treated as and only have the rights of an unsecured creditor.  In contrast, if you are improperly scheduled as a secured creditor but in actuality are an unsecured creditor with the largest claim, then you may be eligible to participate on the committee of unsecured creditors, which guides the  reorganization process. Serving on the committee of unsecured creditors has some benefits, however, in exchange for those benefits the members of the committee have fiduciary duties to the other creditors in the bankruptcy case.  As such, whether one should serve on a committee of unsecured creditors varies from case-to-case and depends on the facts of each individual case.  Additionally, whether one should file a proof of claim different from what is listed on a debtor’s schedule of liabilities also varies from case-to-case and depends on a variety of factors.

 

  • When To File

Rule 3003 does not set a clear deadline for filing a proof of claim.  Instead, Rule 3003 leaves it to the court to fix the deadline for filing.  Sometimes the deadline for filing is contained in a chapter 9 or 11 plan.  As such, it is important for a creditor in a chapter 9 or 11 case to consult with counsel to ensure that you meet all deadlines for filing a proof of claim.

Conclusion: Beware Of Common Pitfalls In The Claims Process

The Federal Rules of Bankruptcy Procedure dictate whether a proof of claim is required and when to file a proof of claim in a bankruptcy case.  Simply following the Rules, however, does not guarantee that you will receive a distribution from the debtor’s estate, or that you will receive the amount to which you are entitled.  For instance, as noted above, your rights may be materially affected depending on whether you are considered secured, undersecured, or unsecured.  Further, if you are determined to be an oversecured creditor – i.e., the amount of your claim is less than your secured collateral – then you may be entitled to recover your post-bankruptcy petition attorneys’ fees from the sale of your collateral.  Consulting with a bankruptcy attorney will help you maximize your recovery and navigate the many potential pitfalls attendant to the bankruptcy claims process.