Bankruptcy Update Blog

Court Nixes Amended Claim Filed After the Effective Date

In a recent post, here, we wrote about a court decision that discussed deadlines for proofs of claim in a case involving a Ponzi scheme.  Then, last week, another court issued a decision concerning late amendments to proofs of claim.  In re James F. Humphreys & Assocs., L.C., Case No. 2:16-bk-20006 (Bankr. S.D. W.Va. Sept. 27, 2017).  The upshot of this case is that amendments to proofs of claim filed after a plan’s effective date will be denied absent “compelling reasons.”

In January 2016, the debtor filed for chapter 11.  The deadline or bar date for creditors to file proofs of claim was May 23, 2016, and later extended to July 16, 2016.  The bar date notice told creditors to file claims with the claims agent, not the bankruptcy court.

On May 23, 2016, Humphrey, Farrington & McClain, P.C. (“HFM”) filed a timely proof of claim in the amount of $1.5 million.

The court later approved a Disclosure Statement and in February 2017 confirmed a Plan of Reorganization.  The Plan said parties could amend claims on or after the Plan’s effective date only with court approval.

On the effective date, HFM filed an amended proof of claim in the amount of $2.39 million.  The claim was filed with the court, not the claims agent.  The debtor moved to strike the claim both because it was filed on the effective date and not with the claims agent.  The court ruled for the debtor.

Bankruptcy Code section 501 and Rule 3001 govern the filing of proofs of claim.  A filed claim is presumptively valid unless and until a debtor objects and introduces evidence to the contrary.  See In re Haupt & Co., 253 F. Supp. 97, 98-99 (S.D.N.Y. 1966); see also In re Harford Sands Inc., 372 F.3d 637, 640 (4th Cir. 2016).  Parties can seek to amend claims, but courts typically apply significant scrutiny when a party seeks to amend a claim after a plan becomes effective. 

Here, the court cited cases from other jurisdictions that had adopted the “compelling reasons” standard.  Holstein v. Brill, 987 F.2d 1268, 1270 (7th Cir. 1993).  See In re Winn-Dixie Stores, Inc., 639 F.3d 1053, 1056 (11th Cir. 2011); In re G-1 Holdings, Inc., 514 B.R. 720, 760 (Bankr. D.N.J. 2014); and In re Nextmedia Group Inc., 2011 WL 4711997, at *3 (D. Del. 2011).

The Judge in James F. Humphrey’s & Assocs., Frank W. Volk, said that HFM had shown no compelling reason for waiting until the effective date to amend its claim.  He also noted that HFM had filed the claim in the wrong place – with the court and not the claims agent.  As a result, the debtor’s motion to strike the amended claim was granted.

This case and the case we wrote about last week, In re Maui Indus. Loan & Fn. Co., 2017 Bankr. LEXIS 2553 (Bankr. D. Hawaii, Sept. 7, 21017), highlight why creditors must be mindful of deadlines concerning proofs of claim.  Creditors often seek to amend claims for various reasons, but James F. Humphrey’s & Assocs. demonstrates why it is highly risky for creditors to wait until after an effective date to do so.