Bankruptcy Cases of Interest in September 2013 from The Consumer Bankruptcy Abstracts & Research, and The National Consumer Bankruptcy Rights Center

Cases in Review September, 2013

“Cases in Review” highlights recent cases that may be of particular interest to consumer bankruptcy practitioners. It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and the National Consumer Bankruptcy Rights Center (www.ncbrc.org).

Authority of the court—Imposition of sanctions—On creditor’s attorney - 

Court can sanction creditor's attorney by requiring that all dischargee complaints comply with the rules: 

The Fifth Circuit Court of Appeals held that the bankruptcy court did not abuse its discretion in requiring a creditor’s attorney (formerly employed by Weinstein & Riley, P.S.) to (1) comply with Fed. R. Civ. Proc. 9(b) in filing nondischargeability complaints under Code § 523(a)(2)(A) and (2) file a copy of the bankruptcy court’s order in every adversary proceeding commenced by the attorney in the Southern District of Texas over the next year. The bankruptcy court found that the attorney had a practice of filing generic credit card nondischargeability complaints that did not comply with Rule 9(b). The Court of Appeals reasoned that nothing in the bankruptcy court's limited order prevented the attorney from practicing law or inconvenienced the attorney to such an extent that it in effect prevented him from the practice of law. The Court of Appeals therefore agreed with the district court's analysis that the bankruptcy court's order did not rise to the level of a suspension and was not quasicriminal in nature. In re Monteagudo, --- Fed. Appx. ----, 2013 WL 3753609 (5th Cir. July 18, 2013).

Chapter 7—Stripping unsecured lien - 

11th Circuit Allows lien stripping second mortgage in Chapter 7 (pub. decision):

The Eleventh Circuit Court of Appeals released an order in In re McNeal that contains two significant decisions. First, the court granted the debtor’s motion to publish its opinion, currently found at In re McNeal, 477 Fed. Appx. 562 (11th Cir. May 11, 2012), which held that, under existing circuit precedent, a Chapter 7 debtor may strip a wholly-unsecured lien. This will result in a fully-precedential opinion. Second, the court stated that, since the stay had been lifted in the appellee mortgage creditors’ bankruptcy cases (which are part of the Residential Capital bankruptcy), the appeal in the pending case was no longer stayed. This will allow the court to consider the creditors’ petition for rehearing en banc. The court said that no ruling would be made on that petition until at least 30 days after publication of the panel decision in the case. In re McNeal, Case No. 11-11352 (11th Cir. Aug. 2, 2013). 

Chapter 13—Confirmation of plan—Calculation of projected disposable income - 

Deducting Pension payments from PDI is permitted: 

Taking the intermediate position on the issue, the bankruptcy court held  that, in calculating projected disposable income, a Chapter 13 debtor is permitted to deduct voluntary contributions to an ERISA-qualified retirement plan that the debtor is making on the petition date. While the contributions are subject to a good-faith analysis, here the 47-year-old debtor’s commencing a $541.67 monthly contribution less than three months prior to filing her joint bankruptcy petition was not in bad faith, where the court found credible the debtor’s explanation that she was worried that Social Security would not be solvent when she reached retirement age. In re Jensen, --- B.R. ----, 2013 WL 3877818 (Bankr. D. Utah July 26, 2013).

Chapter 13—Confirmation of plan—Good faith -  

Plan can pay 100% to unsecured over 60 months even if Debtor you could it in less months is permitted:

Two more courts held that, where a Chapter 13 plan pays unsecured creditors in full, it is not bad faith under Code § 1325(a)(3) for the plan to do so over the debtor’s full applicable commitment period, even if the creditors could be paid more quickly if the debtor paid his or her full projected disposable income each month. In re Braswell, 2013 WL 3270752 (Bankr. D. Or. June 27, 2013); In re McGehan, --- B.R. ----, 2013 WL 4069524 (Bankr. D. Colo. July 19, 2013).

Dischargeability—Court-ordered restitution - 

Restitution was discharged where paid directly to victim: 

Court-ordered restitution of $919,356 that the Chapter 7 debtors, who pled guilty to embezzlement from a vulnerable adult, were directed to pay did not fall within the discharge exception in Code § 523(a)(7) for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit that was not compensation for actual pecuniary loss. Although the debtors' restitution may have been initially payable to the probation department, the Michigan restitution statute required that it then be paid to the victim or her representative or estate, so that the ultimate destination of the restitution was not a governmental unit. Moreover, the amount of the restitution was the amount of damages suffered by the victim, so that the restitution was compensation for actual pecuniary loss. In re Rayes, --- B.R. ----, 2013 WL 3784159 (Bankr. E.D. Mich. July 16, 2013).

Dischargeability—Student loan debts - 

Hardship proven due to health reasons:

 Debtors established undue hardship under Code § 523(a)(8) in two recent cases, although both involved debtors with serious medical conditions. In In re Myhre, 2013 WL 3872509 (Bankr. W.D. Wis. July 25, 2013), the court discharged the student loan debt of a quadriplegic Chapter 7 debtor who was nonetheless able to work full-time and earn between $29,000 and $35,000 per year.  And in In re O'Donohoe, 2013 WL 2905275 (Bankr. S.D. Tex. June 13, 2013) the court discharged the student loan debt of a Chapter 7 debtor who, despite having earned in excess of $150,000 per year for each of 2007, 2008 and 2009, had not worked since then, due to his multiple medical conditions (cancer, morbid obesity, severe depression, bipolar disorder, adult ADHD, obsessive compulsive disorder, high blood pressure, and sleep apnea) and the mental slowness that was a side effect of the medications required to treat these conditions.

Judicial estoppel -

Re-open Ch. 7 case allowed due to mistake or inadvertence, no presumption of deceit:

 Believing that the terms “mistake” and “inadvertence” should be given their natural meanings in the context of the application of judicial estoppel, the Ninth Circuit Court of Appeals acknowledged that its approach was less stringent than that of several other circuits. Where, as here, the debtor reopened her bankruptcy proceedings, corrected her initial error, and allowed the bankruptcy court to re-process the bankruptcy case with the full and correct information, a presumption of deceit no longer was appropriate. Rather, the debtor should be allowed to establish that the cause of action on which she now sued was omitted from her prior bankruptcy schedules through mistake or inadvertence, rather than intention. Ah Quin v. County of Kauai Dept. of Transp., --- F.3d ----, 2013 WL 3814916 (9th Cir. July 24, 2013). 

Means test—Expenses - Don't list Tobacco: 

Taking a position that was nothing if not dogmatic, the bankruptcy court declared that “in the Eastern Division of the Northern District of Alabama, expenses for tobacco may never be taken as a deduction on Schedule J,” and this “will be a per se rule in this Court until the Eleventh Circuit or Supreme Court rule otherwise.” The court said that it had repeatedly sustained the Chapter 13 trustee's objections to deductions claimed for excessive phone, Internet and cable fees, pest control services, security monitoring, pet expenses, non-mandatory retirement payments, and vehicles for non-debtor family members. It was difficult to imagine, the court continued, that counsel believed tobacco expenses would be approved by the court or would not draw an objection from the trustee. In re Vest, 2013 WL 3781508 (Bankr. N.D. Ala. July 18, 2013).

Proof of claim—Secured claim—Post-petition charges—Effect of Rule 3002.1: 

Prima Facie Validity does not apply to Post-petition Charges or POC Supplements :

The Bankruptcy Code is not clear as to the burden of proof with respect to the court's determination under Bankruptcy Rule 3002.1(h) of whether a debtor has cured a prepetition default and paid all required postpetition amounts. Rule 3002.1 does provide that Rule 3001(f), which otherwise grants a presumption of prima facie validity to a proof of claim, does not apply to supplements to the claim, including postpetition fees, expenses, and charges. The court inferred from the absence of a presumption of prima facie validity that the claimant bore the burden of proof under Bankruptcy Rule 3002.1(h). In re Rodriguez, 2013 WL 3430872 (Bankr. S.D. Tex. July 8, 2013).

Use of appearance attorneys - Not allowed due to lack of accountabililty:

Concluding that the use of appearance attorneys posed such significant problems to the proper and effective administration of consumer debtor cases that their use must be barred, Chief Bankruptcy Judge Jeff Bohm ruled that appearance attorneys would no longer be permitted to appear in cases over which he presided. Explaining that one of the largest problems with appearance attorneys was the potential lack of accountability, the court said that appearance attorneys were rarely listed as an attorney of record or co-counsel in a case, and this could raise questions as to the legitimacy of their representation of debtors and their authority to speak for, or make admissions on behalf of, the debtor. Moreover, appearance attorneys helped promote lazy and poor lawyering, as there was evidence that some practitioners never met with their clients. Ultimately, use of appearance attorneys constituted improper representation for an attorney's client. The client did not hire the appearance attorney and, almost always, the client had little or no say as to whether the attorney they did hire would represent them at any given proceeding. Often, debtors were given no notice that their own attorney would not personally represent them at their meeting of creditors or at any hearing, and this was what happened in the case at hand. The court ruled that both Code § 105(a) and Bankruptcy Rule 9029(b) permitted the court to prohibit the further use of appearance attorneys. In re Bradley, ---B.R. ----, 2013 WL 3753559 (Bankr. S.D. Tex.July 16, 2013).

Recent Bankruptcy Cases from Around the Circuits Posted by NACBA.

Cases in Review

June, 2013

“Cases in Review” highlights recent cases that may be of particular interest to consumer bankruptcy practitioners. It is brought to you by Consumer Bankruptcy Abstracts & Research (www.cbar.pro) and

the National Consumer Bankruptcy Rights Center (www.ncbrc.org).

Chapter 13—Confirmation of plan—Treatment of unsecured claims—Unfair

discrimination—Consumer codebtor claim:
Effectively adopting the bankruptcy court’s position that consumer codebtor claims for debts incurred for the debtor’s benefit are excluded from unfair discrimination analysis under Code § 1322(b)(1), the Bankruptcy Appellate Panel embraced a three-part test that requires an examination of (1) whether the claim truly is a codebtor consumer claim; (2) whether the codebtor undertook the underlying liability for the debtor's benefit or vice-versa; and (3) whether the plan satisfies the other requirements for plan confirmation, particularly the good faith requirement under § 1325(a)(3). Here, the bankruptcy court properly determined that the Chapter 13 debtors’ classification scheme was proposed in good faith and satisfied plan confirmation requirements, where the debtors’ plan paid an unsecured consumer codebtor claim of $25,462, which was incurred for the debtor husband’s benefit and guaranteed by the debtor wife’s mother, in full, while paying other unsecured creditors an estimated dividend of 4.51%. In re Martinez Rivera, --- B.R. ----, 2013 WL 1406209 (B.A.P. 1st Cir. April 5, 2013).

Chapter 13—Stripping unsecured lien—Necessity of discharge:
In the first Court of Appeals decision on the issue, the Fourth Circuit Court of Appeals, in a 2-1 panel decision, held that a Chapter 13 debtor ineligible for a discharge may strip a whollyunsecured lien. A completely valueless lien is classified as an unsecured claim under Code § 506(a), the court said, and Code § 1322 expressly permits modification of the rights of unsecured creditors. BAPCPA did not amend sections 506 or 1322(b), so the analysis permitting lien-stripping in “Chapter 20” cases is no different than that in any other Chapter 13 case. A requirement that a claim secured by a worthless lien be considered an “allowed secured claim” for the purpose of Code § 1325(a)(5) would be inconsistent with Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed. 2d 228 (1993), which valued a claim under section 506 before analyzing whether section 1322 barred its modification. While the court did not take lightly the Chapter 13 trustee's assertion that permitting lien-stripping in Chapter 20 cases created an end run around the bar to such relief in Chapter 7 cases enacted in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), the trustee's premise ignored the equally reasonable view that Congress intended to leave intact the normal Chapter 13 lien stripping regime where a debtor could otherwise satisfy the requirements for filing a Chapter 20 case. In re Davis, --- F.3d ----, 2013 WL 1926407 (4th Cir. May 10, 2013).

Dischargeability of debt—For defalcation by fiduciary under Code § 523(a)(4)—Scienter requirement: Observing that “[t]he lower courts have long disagreed about whether ‘defalcation’ includes a scienter requirement and, if so, what kind of scienter it requires,” the Supreme Court, in a unanimous decision by Justice Breyer, held that “defalcation,” for the purpose of the discharge exception found at Code § 523(a)(4), includes a culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior. Noting that, in Neal v. Clark, 95 U.S. 704, 24 L.Ed. 586 (1878), the Court had construed “fraud” as meaning “positive fraud, or fraud in fact, involving moral turpitude or intentional wrong, … and not implied fraud, or fraud in law, which may exist without the imputation of bad faith or immorality,” the Court concluded that the statutory term “defalcation” should be treated similarly. Bullock v. BankChampaign, N.A., 2013 WL 1942393 (U.S. May 13, 2013).

Dischargeability of debt—Student loan debt: In an important win for debtors, the

Seventh Circuit Court of Appeals rejected the district court’s conclusion that the

debtor’s failure to apply for the William D. Ford Income–Based Repayment Plan

showed a lack of good faith under the Brunner test. Code § 523(a)(8) requires proof of

“undue hardship,” the court said, and it was important not to allow judicial glosses to  supersede the statute itself. Here, the evidence showed that the debtor could not pay

the debt now or in the foreseeable future. She was living with her 75-year-old mother

in a rural community where few jobs were available; mother and daughter between

them had only a few hundred dollars (from governmental programs) every month.

She was too poor to move in search of better employment prospects elsewhere, and

her car, which was more than a decade old, needed repairs. She lacked Internet access,

which coupled with the lack of transportation hampered a search for work. The

debtor was 53 years old and had not held a job since 1986, when she left the work

force to raise a family. She did not earn more than $12,000 a year in her working

career (between 1978 and 1986). Krieger v. Educational Credit Management Corp., --- F.3d ----, 2013 WL 1442305 (7th Cir. April 10, 2013).

Dischargeability of debt—Student loan debt: Reversing the bankruptcy court, the BAP held that the 64-year-old unemployed Chapter 7 debtor satisfied the good faith prong of the Brunner test, and that discharge of the debtor’s $95,000 student loan debt on the ground of undue hardship was warranted, although the debtor had made no voluntary payments on the loans and she had not applied for the Income-Based Repayment Plan, where the debtor’s only income was Social Security of $774 per month, which was less than her expenses; the debtor suffered from several chronic medical conditions, including a thyroid condition, diabetes, macular degeneration, cataracts, high cholesterol, and depression; the debtor made good faith efforts to obtain employment, maximize income, and minimize expenses; and the debtor did not come to bankruptcy court seeking discharge until many years after the loans were in repayment status. An important concurring opinion argues that the Brunner test “is too narrow, no longer reflects reality, and should be revised by the Ninth Circuit when it has the opportunity to do so. Put simply, in this era, bankruptcy courts should be free to consider the totality of a debtor's circumstances in deciding whether a discharge of student loan debt for undue hardship is warranted.” In re Roth, --- B.R. ----, 2013 WL 1623839 (B.A.P. 9th Cir. April 16, 2013).

Proof of claim—Secured claim—Existence of security interest: Two courts disagreed over whether the language in Best Buy’s credit application and cardholder agreement, both of which grant Best Buy a security interest in “the goods purchased” with the customer’s Best Buy credit card, is sufficient under UCC § 9-108 to create an enforceable security interest in goods purchased with the card. Compare In re Cunningham, --- B.R. ----, 2013 WL 1429683 (Bankr. D. Kan. April 8, 2013) (security interest does not exist) with In re Murphy, 2013 WL 1856337 (Bankr. D. Kan. May 2, 2013) (security interest does exist).

Property of the estate—Exemptions—Objection to exemption—Timeliness: Under Bankruptcy Rule 2003(e), as amended effective December 1, 2011, the only method for adjourning a meeting of creditors is by announcing the continued date and time at the meeting to be continued, coupled with the prompt filing of that announcement on the case docket. Here, the meeting of creditors was held on November 6, 2012; no adjournment to a specific date and time was announced at the meeting; and nothing in that regard was filed in the case docket. Therefore, the meeting “concluded” on November 6, 2012; the deadline for filing an objection to the debtor's exemptions was December 6, 2012; and the Chapter 7 trustee's objection

filed on December 28, 2012 was untimely. In re Vierstra, --- B.R. ----, 2013 WL 1401494 (Bankr. D. Mass. April 8, 2013).

Property of the estate—Exemptions—Of retirement account under Code §

522(b)(3)(C): Breaking a long winning streak for debtors on this issue, the Seventh  Circuit Court of Appeals held that a non-spousal inherited individual retirement account does not represent “retirement funds” in the hands of the debtor who inherited the IRA and therefore is not exempt under Code § 522(b)(3)(C) and § 522 (d)(12), both of which exempt “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under sections 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” Under 26 U.S.C. §402(c)(11)(A), a non-spousal inherited IRA (i.e., an IRA inherited from a person other than the debtor’s spouse) must begin distributing its assets within a year of the original owner's death. Payout must be completed in as little as five years (though the

time can be longer for some accounts). In other words, an inherited IRA is a timelimited tax-deferral vehicle, but not a place to hold wealth for use after the new owner's retirement. Finding this an “easy” decision, the court disagreed with In re Chilton, 674 F.3d 486 (5th Cir. 2012) and In re Nessa, 426 B.R. 312 (B.A.P. 8th Cir.2010). Acknowledging that this decision created a circuit conflict, the court said that it “circulated the opinion before release to all judges in active service. None of the judges requested a hearing en banc.” In re Clark, --- F.3d ----, 2013 WL 1729600 (7th Cir. April 23, 2013).

Property of the estate—Exemptions—Under state law: Two more courts upheld the Kansas bankruptcy-specific exemption of the right to receive a federal and state earned income tax credit. In these cases, the Chapter 7 trustee, rather than attacking the constitutionality of the state statute, contended that, under Code § 544(a)(2), the trustee, “as lien creditor and as successor to certain creditors and purchasers,” could gain access to an earned income tax credit in the debtor’s hands because an individual outside bankruptcy is not allowed to exempt the credit. The court replied, however, that while under § 544(a)(2) the trustee may stand in the shoes of a creditor to claim that creditor's hypothetical priority in property of the estate, exempt property is not property of the estate, so § 544(a)(2) is simply inapplicable. In re Murray, 2013 WL 1795676 (Bankr. D. Kan. April 29, 2013); In re Beach, 2013 WL 1795598 (Bankr. D. Kan. April 29, 2013).

Violation of stay—Failure to return repossessed vehicle: The Second Circuit Court of Appeals held that a secured motor vehicle creditor's refusal to return a vehicle, lawfully repossessed prepetition, to the debtor promptly upon learning of the debtor’s Chapter 13 bankruptcy filing constitutes an unlawful exercise of control over the property of the debtor’s bankruptcy estate in violation of the automatic stay. Under New York law, the debtor retained at least an equitable interest in the vehicle notwithstanding its repossession, and U.S. v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) teaches that, upon the debtor’s filing of his bankruptcy petition, the debtor’s equitable interest under state law gave the bankruptcy estate a possessory right in the secured property, as property that the trustee could use under  Code § 363. Under Code § 542, that right took precedence over the creditor’s state law right of possession of the collateral. In re Weber, --- F.3d ----, 2013 WL 1891371.

(2nd Cir. May 8, 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).

Click here for full decision:
http://www.nhb.uscourts.gov/Opinions/Judge_Deasy/2013BNH003-Petuck.pdf