Tuesday, June 11, 2013

May 2013 NH Bankruptcy Decisions: Late Filed POC Denied (In re Petuck) with Bar Date Strictly Construed in Ch. 13.

In re Petuck, 2013 BNH 003 (Bankr. D.N.H. 2013)(May 17, 2013, J. Michael Deasy, Bankruptcy Judge).

Debtors’ Motion to Reconsider denial to file a late POC on behalf of the creditor was denied. Cause and excusable neglect were not found to allow the deadline to be extended. The time frames to file a POC in a Chapter 13 are in essence strictly construed.

Further, a motion to reconsider does not exist, but rather the debtors had the option to file either a motion to alter/amend judgment [Rule 59(e)] or motion for relief from judgment [Rule 60(b)], for which each has its own time frames and proofs.  If a motion is served within [fourteen] days of the rendition of judgment, the motion ordinarily will fall under Rule 59(e). If the motion is served after that time, it falls under Rule 60(b). Debtors' motion was filed within fourteen days and considered then a motion to alter or amend the Order under Bankruptcy Rule 9023, which makes Rule 59 applicable. To succeed on a Rule 59(e) motion, a moving party must establish a manifest error of law or fact or must present newly discovered evidence. Here, the Debtors allege an error of law as the grounds for relief.

The Motion makes two arguments. First, that the Debtors did not seek to enlarge the time to file a proof of claim under Bankruptcy Rule 3002(c) (time for filing claims by creditors or equity security holders), but rather under Bankruptcy Rule 3004 (time for filing claims by debtors or trustees). The Debtors argue that Bankruptcy Rule 9006(b)(3) does not restrict the Court’s authority to extend the Bankruptcy Rule 3004 deadline by way of 9006(b)(1), the general rule on extending deadlines. Second, the Debtors argue that their failure to file a claim within Bankruptcy Rule 3004's deadline was a result of excusable neglect.

Debtors filed a chapter 13 plan and intended to cure the mortgagee's arrearage through the plan. Mortgagee did not file  POC by the bar date of 1/13/13. Bankruptcy Rule 3004, the deadline for the Debtors or Trustee to file a proof of claim was 2/13/12 and Debtors did not do.  Debtors filed the Enlargement Motion, requesting that the Court extend the then-expired deadline to file a proof of claim to March 20, 2013, which the court denied. The Enlargement Motion states that Debtors’ counsel neglected to file a proof of claim by the deadline because the deadline “was not entered into [counsel’s] calendar.” The Motion states that Debtors’ counsel “believed that the creditor would file a proof of claim as is customary for a secured creditor. Further, the [D]ebtors were in active loan modification negotiations with the creditor and it was believed that an agreement would be reached.” Finally, the Motion states that the Debtors “requested approval from the court to file a proof of claim as soon as it became apparent that the creditor had failed to do so.” The Motion argues that there will be no delay to the proceedings if the Order is vacated and the Enlargement Motion is granted.

Bankruptcy Rule 9006(b)(1) grants the Court general discretion to extend deadlines under the Bankruptcy Code and Bankruptcy Rules subject to certain conditions and limitations. Under Bankruptcy Rule 9006(b)(1), if a deadline has expired without extension, the Court can extend the deadline if the moving party can show that its failure to act was the result of excusable neglect, subject to certain limitations on extending deadlines enumerated in subsections (b)(2) and (b)(3). The deadline under Bankruptcy Rule 3004 had expired before the Motion was filed.

Bankruptcy Rule 9006(b)(3) states that the Court may extend the deadline under Bankruptcy Rule 3002(c), i.e., the time for filing a proof of claim, only to the extent and under the conditions stated in Bankruptcy Rule 3002(c). Bankruptcy Rule 3002(c) states the general rule that a proof of claim must be filed within 90 days after the first date set for the first meeting of creditors. Subsections (1) through (6) of Bankruptcy Rule 3002(c) state certain limited instances in which the Court may extend the general deadline. The Debtors did not allege or argue that any of the enumerated exceptions to the general deadline applied to the Extension Motion, and excusable neglect is not a ground for an extension of the filing deadline under Bankruptcy Rule 3002(c).

In the Motion, the Debtors argue that they were not seeking to extend the deadline under Bankruptcy Rule 3002(c), but rather under Bankruptcy Rule 3004. They contend that because Bankruptcy Rule 3004 is not enumerated in Bankruptcy Rule 9006(b)(2) or (b)(3), the Court may grant an extension upon a showing of excusable neglect. The Court is satisfied that after the expiration of the deadline under Bankruptcy Rule 3004 it may “for cause shown” and upon a finding of excusable neglect extend the deadline. Bankruptcy Rule 9006(b)(1). See In re Sykes, 451 B.R. 852, 862 (Bankr. S.D. Ill. 2011); In re Schuster, 428 B.R. 833, 837 (Bankr. E.D. Wisc. 2010). In this case, because the deadline the Debtors are seeking to extend has expired without extension, the Court may only extend the deadline upon a showing of both cause and excusable neglect.

Bankruptcy Rule 9006(b)(1) merely allows a court to extend an expired deadline upon a showing of excusable neglect; it does not require it. Pioneer Inv. Servs. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 399 (1993). A determination of excusable neglect is at base an equitable determination, which takes account of “all relevant circumstances surrounding a party’s omission”. Id. at 395 (emphasis added). Some of the relevant factors to consider include:
“the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.

Here, the length of the delay was considerable. The deadline for FNMA to file a proof of claim expired on January 14, 2013 without the creditor having filed a claim. This should have put the Debtors on alert that they had until February 13, 2013, pursuant to Bankruptcy Rule 3004, to file a claim on FNMA’s behalf. However, that deadline came and went without a claim or a motion to extend the deadline being filed. Only on March 13, 2013, a full month after the deadline passed and on the eve of the confirmation hearing on the Debtors’ Plan, did the Debtors seek to extend the deadline. The Debtors state that they requested an extension of the deadline “as soon as it became apparent” that FNMA had failed to file a claim. However, Bankruptcy Rule 3004 provides a thirty day time period for the Debtors to determine if a claim has been filed and, if not, to file a claim for the creditor. The Motion is, in essence, asking the Court to double the period of time for the Debtors to act under Bankruptcy Rule 3004. Such relief might be available upon a showing of cause and excusable neglect.

According to the Debtors, the reasons for the delay included: 1) failure to enter the deadline into counsel’s calendar; 2) a belief that FNMA would file a proof of claim; and 3) existence of ongoing loan modification negotiations between the Debtors and FNMA. These reasons for delay do not establish cause for an extension.

The policy behind the strict deadline for filing of proofs of claim in chapter 13 proceedings is in material part based on the goal of prompt confirmation of a plan, the allowance of claims and commencement of distributions to creditors holding allowed claims. Unreasonable delay in the confirmation of a plan and the allowance of claims is detrimental to the interests of all creditors and the ultimate fresh start for debtors. The deadlines for the filing of claims in a chapter 13 proceeding have been established to avoid delays which would be prejudicial to creditors, as well as debtors.

The adoption of the Debtors’ arguments would, in effect, eliminate the deadlines placed on the timely filing and prompt resolution of claims in chapter 13 proceedings. Such a result requires a high standard for the “cause” to permit such a deviation. In this case, the Motion makes clear that both the Debtors and the creditor were in communication about this claim and simply failed to timely file a proof of claim. No external factors, mistake, or circumstances beyond the control of the parties has been alleged, much less established. Accordingly, the Court does not find cause under Bankruptcy Rule 9006(b)(1) to extend the date.

The only excusable neglect offered is a failure to calendar the deadline.  However, for the reasons discussed in the preceding section on cause, there may be neglect, but it is not excusable.

The totality of the circumstances of the case and the interests of efficient judicial administration of this chapter 13 proceeding weigh in favor of not extending the deadline under Bankruptcy Rule 3004 under the standards established by Bankruptcy Rule 9006(b)(1).

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