Objecting to Claims: Standing 101

Objecting to Claims:  Standing 101

It happens every day.  Thousands of proof of claims are filed in bankruptcy cases throughout America by debt buyers, yet most fail to contain any evidence they actually own the claims.  These claims are then paid, despite the fact that such claims fail to comply with the Bankruptcy Rules, should have been objected to,  and are unenforceable under state law. 

California law requires that before a Plaintiff can even start proving up a lawsuit, they must first establish that they are the proper party to bring the action in the first place. The Plaintiff must prove it has ”standing” under CCCP 367 which provides “Every action must be prosecuted in the name of the real party in interest, except as otherwise provided in statute.”

In other words, its no different than someone suing for injuries arising from an auto accident, yet they were never even remotely involved in the accident in the first place, but somehow ended up with such a claim.   

This fundamental and most basic requirement is overlooked by most debt buyers who file proof of claims.  Yet the Bankruptcy laws are very clear and specific.  Under 11 USC 502, if the claim is unenforceable under state law, then it is also unenforceable under Bankruptcy Law.

In California, if the claimant purchased the account, they must prove evidence of an assignment. “The evidence must not only be sufficient to establish the fact of assignment when that fact is in issue, but the measure of sufficiency requires that the evidence of assignment be clear and positive to protect an obligor from any further claim by the primary obligee.”  Cockerall v. Title Insurance & Trust Co. 42 Cal.2d 284.  For this reason, most proof of claims by debt buyers simply will fail to be enforceable under California Law since these blanket assignments do not contain clear and positive evidence of a proper assignment.

The claimant is also required to prove that any transfers that took place on the account were done with the proper authorities.  Failing to prove that the assignment took place with the proper authority is grounds to hold the assignment invalid.  See Bengel v Kenney, 126 Cal. App. 735.   Again,  since most proof of claims by debt buyers fail to provide any evidence that they were transferred by the proper authorities they once again fail to be enforceable under California Law.

The claimant is also required to prove damages.   However since most proof of claims by debt buyers can not prove damages since no evidence can be introduced due to hearsay, the lack of first hand knowledge,  and “best evidence rule,” these claims once again fail to be enforceable under California Law.

Finally,  many claims under California Law will also fail to be enforceable due to the extended age of the purchased claims and the shorter 2 year statute of limitations which applies.  Since the proof of claim lacks any evidence of a contract, obligation,  or liability based upon a writing that can be provided pursuant to California Code of Civil Procedure 337 to allow a 4 year statute of limitations, the quicker 2 year statute of limitations under California Code of Civil Procedure 339 will apply.

So the bottom line is that many improper claims in Bankruptcy Cases are being paid which are unenforceable under California Law.  Outside California,  other similar state laws will operate in the same manner.  So be sure to have a competent attorney review every proof of claim that is filed in your bankruptcy case.  Unenforceable claims that get paid are simply a waste of valuable earnings and only provide windfalls to undeserving claimants.

Written by Michael G. Doan