Better Late Than Never: The Informal Proof of Claim Doctrine
Douglas E. Wedge 1

Bankruptcy cases generally move at a fast pace, requiring creditors to monitor cases diligently in order to protect their interests. With high-profile chapter 11 cases becoming larger and more complex and containing many related corporate entities, the task of keeping up with the flurry of motions, objections, notices, and certifications can be challenging. Somewhere in this wave of filings will be the debtor’s motion seeking to establish the claims bar date by which time proofs of claim must be filed in order to be considered timely.2 Unfortunately, this deadline can slip past even the most conscientious creditor who, for whatever reason, inadvertently fails to file a timely proof of claim. Failing to file a timely proof of claim places a creditor in an unenviable position as the debtor may now object to a late-filed proof of claim as untimely, and the creditor is now one of the last parties to receive a distribution, if any.

Thankfully, courts recognize that this scenario may harshly penalize an otherwise active creditor because it simply missed a deadline. To alleviate some of this sting, courts have developed the concept of informal proofs of claim, a doctrine which, in certain circumstances, relieves creditors who failed to file a formal proof of claim within the bar date. Generally, courts will examine a creditor’s pre-bar date actions in the case and determine whether these acts constitute an informal proof of claim that the creditor may amend, with permission of the court, by filing a formal proof of claim after the bar date.

The standard courts use to determine whether a creditor’s pre-bar date acts rise to the level of an informal proof of claim varies among circuits. The Fourth Circuit relies on a liberal approach to informal proofs of claim where, if anything in the bankruptcy case’s record establishes a claim, the creditor will be allowed to amend its claim when substantial justice will be done by allowing the amendment.3 In apparent contrast, another line of cases appears to be more stringent in its application of the doctrine by requiring the creditor to file a writing with the bankruptcy court establishing the claim. Unlike the general principle espoused in the Fourth Circuit, the Fifth Circuit seeks the satisfaction of the following elements in order to find an informal proof of claim: (1) the claim must be in writing; (2) the writing must contain a demand by the creditor on the debtor’s estate; (3) the writing must evidence an intent to hold the debtor liable for such debt; (4) the writing must be filed with the bankruptcy court; and (5) based on the facts of the case, allowance of the claim must be equitable under the circumstances.4

At first blush, the Fifth Circuit approach appears rigid and as unwavering as the claims bar date deadline from which creditors are seeking flexibility. Indeed, this approach forecloses an appearance at a first meeting of creditors, participation at a 2004 examination of a debtor’s principal, or correspondence with the debtor’s counsel regarding the nature of the creditor’s claim as insufficient to establish an informal proof of claim because these acts are not a writing filed with the bankruptcy court. As a practical matter, however, even under a “liberal” approach like that found in the Fourth Circuit, which permits an informal proof of claim where the creditor has affirmatively acted to alert other parties to the presence of its claim, a writing filed with the court is the best if not only means through which to alert the debtor, the court, and other interested parties of the creditor’s claim and the creditor’s status in a case.5 For example, while a creditor could appear at a first meeting of creditors and, through its line of questioning of the debtor’s principal, suggest that it holds a claim, it has notified only those present at the meeting of its status as a creditor. In contrast, a writing filed with the court becomes a part of the case’s record and is available to all parties who are interested in that particular case. Indeed, a recent case reviewing Fourth Circuit informal proof of claim precedent noted a number of cases where an informal proof of claim was found in large part because of a writing filed with the court.6

The good news is that the law recognizes the need for flexibility with the informal proof of claim doctrine. Missing a deadline does not necessarily mean that a creditor will receive no distribution. In addition, the courts have tended to award relief to the creditors that have actively participated in the case. However, the informal proof of claim doctrine is no panacea for all missed claims bar dates. The doctrine has its limitations, and creditors who have filed a writing with the court will be in a much better position to look to the doctrine as a cure than will creditors without a writing.

1 Moore & Van Allen, PLLC
40 Calhoun Street, Suite 300
Charleston, SC 29401
(843) 579-7027
(843) 579-8738
dougwedge@mvalaw.com
Back To Text

2 In chapter 11 cases, the court establishes the deadline for filing proofs of claim pursuant to Federal Rule of Bankruptcy Procedure 3003(c)(3). In chapter 7 liquidation, chapter 12 family farmer debt adjustment, and chapter 13 individual debt adjustment cases, the deadline for filing proofs of claim is no later than ninety days after the first date set for the meeting of creditors. See Federal Rule of Bankruptcy Procedure 3002(c).
Back To Text

3 See Fyne v. Atlas Supply Co., 245 F.2d 107, 108 (4th Cir. 1957).
Back To Text

4 See Nikoloutsos v. Nikoloutsos (In the Matter of Nikoloutsos), 199 F.3d 233, 236 (5th Cir. 2000); see also Barlow v. M.J. Waterman & Assoc., Inc. (In re M.J. Waterman & Assoc., Inc.), 227 F.3d 604, 609-10 (6th Cir. 2000); Clark v. Valley Fed. Sav. & Loan Ass’n (In re Reliance Equities, Inc.), 966 F.2d 1338, 1345 (10th Cir. 1992).
Back To Text

5 See Davis v. Columbia Constr. Co., Inc. (In re Davis), 936 F.2d 771, 775-76 (4th Cir. 1991).
Back To Text

6 See In re Elleco, Inc., 295 B.R. 797, 801 (Bankr. D. S.C. 2002) (noting that writings filed with the courts that were sufficient to constitute an informal proof of claim included a motion for relief from the automatic stay, an objection to confirmation, and a complaint instituting an adversary proceeding against the debtor).
Back To Text

OTHER STORIES
IN THIS ISSUE:

UTCC Focuses on Claims Buying, Selling at 2004 Annual Spring Meeting

Creditors' Liquidating Trusts