Bankruptcy Litigation Committee

ABI Committee News

Creditors’ Failure to Attach Sufficient Documentation in Support of Proof of Claim Is Not a Basis for Disallowing the Claim

Trustees and debtors frequently object to creditors’ claims based on the creditors’ alleged failure to attach sufficient documentation in support of the proofs of claim pursuant to Federal Rules of Bankruptcy Procedure 3001(c) and 3001(f). 

Rules 3001(c) and (f) provide:

    (c) Claim based on a writing
    When a claim, or an interest in property of the debtor securing the claim, is based on a writing, the original or a duplicate shall be filed with the proof of claim.  If the writing has been lost or destroyed, a statement of the circumstances of the loss or destruction shall be filed with the claim.

                            * * * * * *

    (f) Evidentiary effect
    A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.

The Ninth Circuit Bankruptcy Appellate Panel (BAP) recently announced in In re Heath, 331 B.R. 424  (9th Cir. BAP 2005), the majority view that failure to attach sufficient documentation is not a ground for disallowing a claim.

In Heath, chapter 7 debtors objected to credit card issuers’ proofs of claim as lacking necessary documentation. The bankruptcy court overruled the debtors’ objections and allowed the claims. The debtors appealed. 

The Ninth Circuit BAP held that while the failure to attach sufficient documentation would deprive the proofs of claim of their prima facie validity, the lack of documentation was not a basis for disallowing the claims.  The BAP reasoned that the Bankruptcy Code sets forth the sole grounds for objections, which do not include lack of compliance with Rule 3001(c), stating:

    3.  The statute sets forth the sole grounds for objections, which do not include lack of compliance with Rule 3001(c)

    The requirements for proofs of claim are contained in the Bankruptcy Code, the Bankruptcy Rules and the official forms.  Section 501(a) states that a creditor “may file a proof of claim.” 11 U.S.C. §501(a). Section 502(a) states:

    §502. Allowance of claims or interests
    (a) A claim or interest, proof of which is filed under §501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.
    11 U.S.C. §502(a).

    Section 502(b) provides that if an objection to a claim is made, then the court, with inapplicable exceptions, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount except to the extent that – (1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured [or any of eight other reasons for disallowance]. 11 U.S.C. §502(b)(1) – (9).

In re Heath, 331 at 431. The BAP initially noted a split of authority:

    The reported decisions are split on this issue. What seems to be the minority view is that where a proof of claim is not entitled to prima facie validity under Rule 3001(c) and (f), that is a sufficient basis by itself to disallow the entire claim if the creditor does not amend its claim within a limited time, such as by the deadline to respond to the objection to their claim.

Id. at 434. The BAP then discussed the justification for the minority approach:

    One justification for this minority approach is the burden to debtors or a trustee who “should not have to incur the cost of making a claims objection based on lack of supporting documentation when the Rules initially place the burden of providing support on the creditor,” combined with the practical difficulties of obtaining accurate and complete information from institutional holders of credit card debt who frequently are not the original holder. Henry, 311 B.R. at 816-17. Another possible justification is the burden on a debtor – or a trustee who may not have familiarity with the debtor’s actual debts – who must somehow decide which claims might be overstated or improper. Regularly excusing inadequate documentation could lead creditors to abuse the system. In re All-American Auxiliary Assn’n., 95 B.R. 540, 545 (Bankr. S.D. Ohio 1989). Debtors echo these concerns on this appeal by asserting that without adequate documentation attached to the proof of claim, they have “no meaningful opportunity to challenge the validity of the claim” and that they should not have to bear the costs and burden of discovery.

Id. In agreeing with the majority view, the BAP stated:

    We are not persuaded by the minority view or by debtors’ arguments. First, we are bound by the plain meaning of the statute. Section 501(a) provides that a “creditor or an indenture trustee may file a proof of claim.” 11 U.S.C. §501(a). Section 502(a) states that a claim filed under §501 “is deemed allowed” unless an objection is made. 11 U.S.C. §502(a). Section 502(b) states that if an objection to a claim is made, then the court “shall” determine the amount of such claim and “shall allow such claim” except to the extent that one of the limited grounds for disallowance is established. 11 U.S.C. §502(b) (emphasis added). Non-compliance with Rule 3001(c) is not one of the statutory grounds for disallowance. The minority decisions do not explain how they can disregard this statutory mandate. The statute’s provisions cannot be enlarged or reduced by the Rules.

Id. at 435.

On a very practical level, the BAP suggested that if the debtors genuinely questioned and sought to verify the correct amounts of their credit card debt, they should have contacted the creditors and asked for appropriate documentation.

In any case, if the debtors truly felt that the amount of the claims was not proper, they could have “under penalty of perjury” filed an objection so stating. If this had been done in Heath, it would have forced the creditors to reply on the merits. If the claimants failed to reply with admissible evidence, I’m sure the trial court would have sustained the objections.

The situation for a bankruptcy trustee, who has no personal basis for objecting to the claim, is more difficult. Nevertheless, as with an individual debtor, the trustee can also contact the creditor for more information. If the trustee is still not satisfied, the trustee is free to bring an objection requesting the court to put the creditor to its burden of proof. Remember, in this case there is no presumption of validity.

Conclusion

A debtor’s objection to a claim solely on the basis of an alleged lack of sufficient documentation under Rule 3001(f) is not a sufficient objection recognized by §502 to disallow the claim.