Can A Disallowed Claim In Chapter 13 Resurface?

28 Jul Can A Disallowed Claim In Chapter 13 Resurface?

So your attorney objected to a claim and got it disallowed in your Chapter 13 case.  A year later, the creditor decides to move the court to reconsider the claim.  Can they do this?

While the Creditor can file a motion for reconsideration at anytime(yes there is no law that it be done within a certain number of days), whether the claim will be reconsidered and allowed is a different story.  This is because a disallowed claim may only be reconsidered if the Creditor shows “cause” and the equities demand it be allowed.  See 11 USC 524(j)

 

Moreover, if the motion for reconsideration was filed more than 10 days after the order disallowing the claims, case law is well established that a motion for reconsideration should be treated as a motion for relief from judgment under Bankruptcy Rule 9024.  See In re Cleanmaster Industries, Inc.,.106 B.R. 628, 1989 Bankr. LEXIS 1868 (B.A.P. 9th Cir. Cal. 1989) and In re Aguilar, 861 F .2d 873 (5th Cir,1988).  This then brings up FRCP 60(b) for the creditor to pass.

 

A great decision commenting on this comes from the 9th Circuit BAP.  The case of United Student Funds, Inc. v. Wylie (In re Wylie), 349 B.R. 204, 2006 Bankr. LEXIS 2088, 66 Fed. R. Serv. 3d (Callaghan) 39 (B.A.P. 9th Cir. 2006) arose from a creditor’s motion for reconsideration and was denied (which was filed only 14 days after the court order disallowing the claim).  In that case the creditor never originally responded to the claim objection, despite receiving notice of the objection via first class mail to the address listed in the proof of claim.  In that case, the Court stated:

 

 

When reconsideration under Rule 3008 is sought after the 10-day appeal period has expired, the motion is subject to the constraints of FRCP 60(b) as incorporated by Rule 9024. In re Aguilar, 861 F.2d at 874-75; S.G. Wilson Co. v. Cleanmaster Indus., Inc. (In re Cleanmaster Indus., Inc.), 106 B.R. 628, 630 (9th Cir. BAP 1989).

Thus, a motion under FRCP 59, which must be filed prior to the expiration of the 10-day appeal period, may seek a reconsideration of the correctness and merits of the trial court’s underlying judgment. See, e.g., Osterneck v. Ernst & Whinney, 489 U.S. 169, 174-77, 109 S. Ct. 987, 103 L. Ed. 2d 146 (1989).

However, when reconsideration is sought under FRCP 60(b) after the appeal period has expired, the party seeking reconsideration is not permitted to revisit the merits of the underlying judgment or argue that the trial court committed some legal error in arriving at that judgment. See, e.g., Van Skiver v. United States, 952 F.2d 1241, 1243-44 (10th Cir. 1991), cert. denied, 506 U.S. 828, 113 S. Ct. 89, 121 L. Ed. 2d 51 (1992). Instead, that party is limited to the narrow grounds enumerated in FRCP 60(b). Id. These grounds generally require a showing that events subsequent to the entry of the judgment make its enforcement unfair or inappropriate, or that the party was deprived of a fair opportunity to appear and be heard in connection with the underlying dispute.

 This distinction is drawn in order to preserve the finality of the order allowing or disallowing a claim. While Rule 3008 permits an order disallowing a claim to be reconsidered, the merits of the claim objection are no longer fair game unless the claimant first establishes a good excuse, cognizable under FRCP 60(b), for its failure to timely contest the objection.

So if you see a claim resurface, and/or a motion for reconsideration filed, be sure to confirm with your attorney that it is being opposed.  Generally, anything after 10 days from the final order on the objection should not be reconsidered unless strong evidence exists for one of the exceptional circumstances of FRCP 60(b).
Written by Michael G. Doan

 

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