Bankruptcy Beat: Bankruptcy Court Rules That Undersecured Creditor Could Object to Claims that Were Listed on the Debtor’s Bankruptcy Schedules as Undisputed and Not Contingent or Unliquidated, Even Though No Proofs of Claim Had Been Filed

by Pullman & Comley, LLC
Contact

In In re 3333 Main, LLC, Case No. 13-51533 (ECF No. 172) (Bankr. D. Conn. May 29, 2014) (Shiff, J.), the Debtor listed a number of unsecured claims on its bankruptcy schedules without indicating they were disputed, contingent or unliquidated.  The creditors who held these claims did not file proofs of claim, apparently because under §1111(a) of the Bankruptcy Code, a proof of claim in a chapter 11 case “is deemed filed” under §501(a) of the Bankruptcy Code for any claim that appears on the debtor’s schedules, as long as it is not scheduled as disputed, contingent or unliquidated.  These creditors were apparently friendly to the Debtor and would have been prepared to accept the Debtor’s plan of reorganization.

A hostile secured creditor, whose claim was undersecured by at least the amount of $977,000, filed objections to the claims that were listed on the Debtor’s schedules as undisputed and not contingent or unliquidated.  The Debtor was the only party to respond to the objections, and objected on the basis that the claims could not be objected to by the undersecured creditor because no proofs of claim had been filed.

The Bankruptcy Court ruled that because proofs of claim were “deemed” to be filed for these undisputed claims by §1111(a), an objection to the “deemed filed” proofs of claim could be asserted on the basis of §502(a), which states that “[a] claim…proof of which is filed under section 501 of this title, is deemed allowed unless a party in interest…objects.”(emphasis added).  Since a creditor qualifies as a party in interest under §1109(b) of the Bankruptcy Code, the undersecured creditor was held to have standing to object to the claims.

The Bankruptcy Court then sustained the objections to the claims because, after proper service of the objections and the notice of hearing, the creditors whose claims were objected to did not respond and prove the bona fides of their claims.  The Bankruptcy Court reasoned that, although the normal burden of proof on an objection to claim requires the objecting party to come forward with some evidence to refute at least one essential element of the claim, that rule did not apply here because it is only directed to the situation where a creditor actually files a proof of claim.  In that event, the Bankruptcy Rules supply “prima facie evidence of the validity and amount of the claim,”  Fed. R. Bankr. P. 3001(f), and thus, when a proof of claim is filed, the objecting party must come forward with evidence that rebuts the presumptive validity and amount of the claim.

After disallowing the claims, the Bankruptcy Court turned to the undersecured creditor’s motion to convert the Debtor’s chapter 11 case to one under chapter 7.   Since the Debtor had on file a plan of reorganization and disclosure statement at the time the motion to convert was considered, the Bankruptcy Court undertook an analysis of whether the plan could be confirmed in determining whether to convert the case.

The Bankruptcy Court converted the case to chapter 7 because it found that the plan could not be confirmed as a matter of law.  This was because after disallowance of the “deemed filed” claims, the only impaired class of creditors under the Debtor’s plan, other than the class housing the secured portion of the undersecured creditor’s claim, was the class of unsecured creditors, which was overwhelmingly dominated by the unsecured portion of the undersecured creditor’s claim.  Thus, because the undersecured creditor would not vote to accept the Debtor’s plan, the Bankruptcy Court found it impossible for the Debtor to satisfy the requirement of plan confirmation that if there are one or more impaired classes of claims under a plan, as there were here, at least one of them must accept the plan.  As a result, there was no reasonable likelihood of rehabilitation under chapter 11, which is a separate ground for conversion under §1112(b)(4)(A) of the Bankruptcy Code.

[View source.]

 

Written by:

Pullman & Comley, LLC
Contact
more
less

Pullman & Comley, LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.