By Diane P. Furr & Lisa P. Sumner

Diane Furr, Esq.

Preparing and filing a Proof of Claim is not always as simple as one might think considering that the form is a simple one page document with instructions attached. However, there are potential pitfalls involved in preparing and filing a Proof of Claim. Creditors who fall victim to these pitfalls have been the subject of unpleasant surprises in recent bankruptcy cases.

1. Be sure to file where directed: Proofs of Claim generally are filed with the Clerk of Court in the district and division of the bankruptcy court where the debtor's bankruptcy is filed. Often in large Chapter 11 cases, though, claims are directed to be filed with a claims agent instead of the Clerk. In addition, some debtors obtain detailed court orders setting forth specific procedures for filing which differ from traditional instructions and may require sending copies of the Proof of Claim to additional parties in order to have the claim considered properly filed. If you receive an order setting bar dates for Proof of Claim, read carefully! If you are in a Chapter 13 case, be aware that many districts require a Chapter 13 claim to be filed with the Chapter 13 Trustee instead of the Clerk.

2. Who is the debtor? In bankruptcy cases where there are multiple debtor affiliates and corporations, the creditor should make proper inquiries and verify that it is filing its Proof of Claim in the proper corporate debtor bankruptcy case and not in the bankruptcy case of a holding company or related affiliate. For example, you may be sending invoices to, and receiving payments from, the parent company. However, in reality the debtor actually receiving your goods is another related company. If you do not file your Proof of Claim in the correct corporate debtor case, your claim can be objected to and denied.

3. 503(b)(9) claims: Do not confuse your Proof of Claim with your 503(b)(9) claim (claim for goods received by a debtor in the twenty (20) days prior to the bankruptcy filing of debtor) or any other administrative claim. A request for payment of administrative expenses filed pursuant to Section 503 of the Code is made by filing a motion or a request for a payment of administrative claim. No deadline for filing such claims is set by the Code or the federal rules. The bankruptcy court usually sets those deadlines. Sometimes in a large case, a debtor will create a form for 503(b)(9) claims and set a bar deadline for such claims at the same time it sets the bar date for filing a

   Lisa Sumner

   regular Proofs of Claim.

4. What to attach to the Proof of Claim: In larger bankruptcy cases, orders setting bar dates and directions for filing Proofs of Claim have become increasingly detailed. Examples of directions in recent cases include requirements that a Proof of Claim be written in English, be denominated in lawful currency of the United States as of the petition date, state the correct debtor against which it is filed, state with specificity the legal and factual basis for the alleged claim, filed with the claims agent or Clerk, as well as various other entities, and required that specific supporting documentation be attached or in the alternative, that an explanation as to why documentation is not available or included with the Proof of Claim be provided. It is always required that, if your claim is based on a writing, you must file a copy of such writing with the Proof of Claim, or if the writing has been lost or destroyed, you must file a statement explaining the circumstances of the destruction. If you have a secured claim, you must include evidence of the fact that your claim is secured and that it is perfected. That usually includes filing copies of UCC financing statements, the promissory note, and security documents that support the secured interest. We always recommend that a summary of documents be attached to the Proof of Claim to help the trustee or debtor review the claim. The summary should include a breakdown of the Proof of Claim amount if you are including interest and fees in your total claim amount.

5. Filing Deadlines: You must file the Proof of Claim before the bar date passes. The filing date is the date when the Clerk or the claims agent actually receives the Proof of Claim and not when it is mailed. Some orders setting bar dates will set not only the date by which Proofs of Claim must be filed, but a time deadline on that date - for example, 5:00 p.m. EST.

6. Hot Topics, Recent Cases.
   • In a case filed in the Eastern District of Virginia, Chapter 13 debtors filed objections to two claims of a creditor and a motion for sanctions alleging that the claims were fraudulent because the underlying claims were barred by the statute of limitations. The Court found that, while the claims may be barred by the statute of limitations, the debt had not been extinguished, rather, it was simply not enforceable. The Court granted the objections to claims, but denied sanctions and an award of attorneys' fees.

   • In a recent Georgia bankruptcy case, the bankruptcy court upheld objections by the debtors on grounds that the Proofs of Claim filed by certain creditors had no or insufficient supporting documentation attached.

   • In a recent case in the 4th Circuit, a creditor timely filed its Proof of Claim in the bankruptcy case of a bankrupt parent company of its debtor-customer because that was the entity with which the creditor had always dealt. The debtor let the bar date pass before it objected to the Proof of Claim for being filed in the wrong case. The creditor moved to allow its Proof of Claim as an amendment to a timely filed claim in the parent case and as an informal Proof of Claim in the debtor-customer's case. The Court denied the creditor's motion, holding that even though the creditor was listed on the debtor's schedules, because the cases were not jointly administered, there was no informal Proof of Claim.

     The Court said if the creditor had taken some action in the debtor-customer's case, such as filing an objection to a pleading, the Proof of Claim might be allowed. The Court did say that the creditor could file a tardy 503(b)(9) administrative claim in the Chapter 7 case as long as it is filed on or after the earlier of the date on which trustee commences final distribution to creditors or files a final report. It is important to note both of these debtors' Chapter 11 cases were converted to Chapter 7 cases.

     The Chapter 7 Trustee had an obligation to fight any untimely filed claims even if allowance of such claims would not prejudice the other unsecured creditors or prejudice the amount of their distribution. In similar Chapter 11 bankruptcy cases in the same Court, that did not convert to Chapter 7, the Court allowed creditors who had improperly filed their Proofs of Claim in the Chapter 11 parent case to transfer their claims to the correct Chapter 11 case.

   • A bank's Proof of Claim was denied in a recent case when it did not file its deficiency Proof of Claim for over one year after the mandated bar date, even though the sale of the collateral did not occur until months after the bar date had passed. The Court held that the bank, which was potentially undersecured and facing a Chapter 13 plan to surrender its collateral, should have filed a Proof of Claim within the bar date. The Court held that the claim could have been filed as fully secured, or alternatively, the bank could have estimated the unsecured amount or put "undetermined" on the Proof of Claim. Then, when the collateral sold, the bank could have amended the claim.

The bottom line is that if you correctly complete your Proof of Claim, execute it and file it in accordance with bankruptcy rules and the order setting bar dates, then the evidentiary effect of such a Proof of Claim pursuant to Bankruptcy Rule 3001(f) is that such Proof of Claim constitutes prima facie evidence of the validity and amount of the claim. Your claim will therefore be valid unless and until it is objected to by the debtor or trustee. Being aware of the pitfalls in preparing and filing a Proof of Claim will help you avoid objections and possible disallowance of your claim.

Diane Furr, Esq. practices in the areas of bankruptcy and creditor's rights, workouts, banking and commercial law. She represents secured and unsecured creditors in Chapter 11 cases involving preferences, reclamations, debtor-in-possession financing, asset purchases, workouts, and turnarounds, and also represents debtors in Chapter 11 cases.

Lisa Sumner practices in the areas of Bankruptcy and Commercial Litigation, and she is the Chair of PoynerSpruill's Bankruptcy and Creditors' Rights practice group. She is licensed and has practiced in the federal and state courts in North Carolina, South Carolina, and Virginia.

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