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Creditor's Failure To File Claim Equals No Chapter 13 Bankruptcy Distribution

Posted By admin || 7-Jun-2011

Creditor's Failure To File Claim Equals No Chapter 13 Bankruptcy Distribution

In a recent Texas Chapter 13 bankruptcy , the bankruptcy court ruled that a secured creditor who failed to file a timely proof of claim cannot be allowed to collect distribution under the bankruptcy repayment plan.

Details of the bankruptcy case:

Munger ("Munger" or "Debtor") and 3601 Olsen, LLC ("Olsen") executed a lease agreement in August 2007.  Under the lease, Munger agreed to pay rent to Olsen in return for the right to use a commercial building located at Block No. 37 of Lawrence Park in Amarillo, Texas for the purpose of running a nightclub. Lease Agreement p. 1. The terms of the agreement granted Olsen a security interest in "Tenant's goods and inventory now or subsequently located on the Premises." Id. ¶ 5.10. The stipulations do not otherwise describe the "goods and inventory," nor do they provide their value or even confirm their current existence. Munger failed to make payments according to the lease terms and abandoned the premises in the fall of 2008. Olsen then filed suit in state court for damages as a result of the breached lease.

While the creditor in this case received notification that the debtor had filed bankruptcy, they did not file a proof of claim until well after the bar debt.  The $25,000 proof of claim was objected to by both the bankruptcy trustee and the debtor because of its tardiness.  The creditor fought the objections saying that a secured creditor did not need to file a proof of claim because they automatically had an interest in the secured property. However, the bankruptcy court ruled that while a secured creditor did not need to file a claim in bankruptcy to keep their lien on a secured property, they did need to file a claim if they wanted to receive distribution under the bankruptcy repayment plan.  For example, if a car loan creditor failed to file a proof of claim in a debtor's bankruptcy case that would not stop them from keeping a lien on the secured portion of the vehicle. However, when it came time to receive payments under the bankruptcy plan, they would not receive anything.

Categories: Chapter 13 Bankruptcy
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