Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-06015/USCOURTS-ca8-05-06015-0/pdf.json

Parties Involved:
Alvina Hollingsworth
Appellant
Kip M. Kaler
Appellee

Document Text:

United States Bankruptcy Appellate Panel 

FOR THE EIGHTH CIRCUIT

 

No. 05-6015 ND

 

In re: *

*

Alvina Hollingsworth, *

*

Debtor. *

*

Alvina Hollingsworth, * Appeal from the United States

* Bankruptcy Court for the 

Debtor -Appellant, * District of North Dakota

*

v. *

*

Kip M. Kaler, *

*

Trustee - Appelee. *

 

Submitted: September 15, 2005

Filed: October 3, 2005

 

Before KRESSEL, Chief Judge, SCHERMER and VENTERS, Bankruptcy Judges

SCHERMER, Bankruptcy Judge

Appellate Case: 05-6015 Page: 1 Date Filed: 10/03/2005 Entry ID: 1958792
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The Honorable William A. Hill, United States Bankruptcy Judge for the

District of North Dakota.

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Debtor Alvina Hollingsworth (“Debtor”) appeals the bankruptcy court1 order

allowing the payment of two late-filed claims. We have jurisdiction over this appeal

from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons

set forth below, we affirm.

ISSUE

The issue on appeal is whether creditor First Community Credit Union

(“Creditor”) should have received distribution from the Debtor’s bankruptcy estate

on account of its late-filed claims. We conclude that the Creditor was entitled to

distribution on account of its claims pursuant to 11 U.S.C. § 726(a)(3).

BACKGROUND

The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code

on April 16, 2003. Kip M. Kaler (“Trustee”) was appointed Trustee of the Debtor’s

bankruptcy estate. The Trustee learned that the Debtor’s bankruptcy estate was

entitled to a distribution from the probate estate of the Debtor’s brother which would

in turn fund a distribution to the Debtor’s creditors. Therefore, at the Trustee’s

request, the bankruptcy court gave notice to creditors of the Debtor’s bankruptcy

estate to file proofs of claim no later than March 9, 2004.

On November 6, 2004, the Trustee received $75,000 on behalf of the Debtor’s

bankruptcy estate from the Debtor’s brother’s probate estate.

On November 12, 2004, the Creditor filed two proofs of claim asserting general

unsecured claims.

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The Trustee filed his Final Report setting forth his intent to pay all claims in

full, including the Creditor’s late-filed claims, and delivering surplus funds of

$6,359.60 to the Debtor. The Debtor objected to the proposed Final Report, arguing,

inter alia, that the Creditor should not receive any distribution on account of its

claims because it had filed the proofs of claim late and it had written off the debts.

The bankruptcy court overruled the Debtor’s objection and approved the Trustee’s

Final Report. The Debtor appeals the order approving the Trustee’s Final Report.

STANDARD OF REVIEW

The facts are not in dispute. We review the bankruptcy court’s conclusions of

law de novo. Apex Oil Co., Inc. v. Sparks (In re Apex Oil Co., Inc.), 406 F.3d 538,

541 (8th Cir. 2005); Stoebner v. Wick (In re Wick), 276 F.3d 412, 415 (8th Cir. 2002).

DISCUSSION

A creditor may file a proof of claim against the bankruptcy estate of a debtor.

11 U.S.C. § 501(a). A claim for which a proof of claim is filed is deemed allowed

unless a party in interest objects to the allowance of such claim. 11 U.S.C. § 502(a).

An objection to the allowance of a claim must be in writing and must be filed with the

bankruptcy court. Fed. R. Bankr. P. 3007. A copy of the objection and a notice of

hearing thereon must be mailed to the creditor who filed the proof of claim, the

debtor, and the trustee at least thirty days prior to the hearing. Id. 

In the instant case, the Creditor filed two proofs of claim. There is no evidence

that any party in interest filed an objection to either proof of claim. Rather, the only

evidence that the Debtor disputes the Creditor’s claims is the argument she raised in

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To the extent the Debtor believes the Creditor’s claims are invalid, she

should have filed an objection to the Creditor’s proofs of claim. By failing to do

so, the Debtor waived any objection to the merits of the Creditor’s claims.

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her objection to the Trustee’s Final Report and in her brief on appeal.2 Accordingly,

the Creditor’s claims are allowed claims pursuant to 11 U.S.C. §§ 501(a) and 502(a).

Generally, a deadline exists for filing proofs of claim. Fed. R. Bankr. P. 3002-

3005. Under Chapter 7, if at the outset of a case it appears as if the bankruptcy estate

will have insufficient assets to pay a dividend to creditors, creditors are notified of

such fact, are advised that it is unnecessary to file a proof of claim at that time, and

are informed that if assets become available for payment of a dividend a further notice

will be given regarding the filing of proofs of claim. Fed. R. Bankr. P. 2002(e). If

the possibility of a dividend arises later in the administration of a case, the trustee

may ask the court to issue a notice advising creditors that a dividend is possible and

establishing a deadline of ninety days within which creditors may file proofs of claim.

Fed. R. Bankr. P. 3002(c)(5). That is what happened in this case. After the Trustee

learned that the bankruptcy estate would receive the distribution from the Debtor’s

brother’s probate estate, the bankruptcy court established March 9, 2004, as the

deadline to file proofs of claim. The Creditor did not file any proofs of claim until

November 12, 2004, more than eight months after the deadline. The Debtor does not

believe the Creditor should receive payment on account of its claims because it did

not timely file the proofs of claim.

The Bankruptcy Code does not automatically disallow late claims. A party in

interest may object to a proof of claim which is tardily filed. 11 U.S.C. § 502(b)(9).

However, lateness does not invalidate a claim to the extent it is: (1) a priority claim

filed in time to participate in a distribution; (2) an unsecured claim held by a creditor

who did not have timely notice of the claims bar date and who files the claim in time

to participate in a distribution; or (3) an unsecured claim to the extent excess funds

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remain after payment of timely filed claims. 11 U.S.C. §§ 502(b)(9) and 726(a)(1)-

(3). The net effect of the foregoing is to subordinate the payment of late unsecured

nonpriority claims to the payment of nonpriority unsecured claims for which proofs

were timely filed. 11 U.S.C. § 726(a)(3).

In the instant case, the Creditor’s claims are allowed unsecured claims which

are entitled to payment after timely filed unsecured claims are paid in full. 11 U.S.C.

§§ 502(a) and 726(a)(3). The Trustee had sufficient funds in the estate to pay all

timely filed claims in full and to pay tardily filed claims in full as well. In fact, the

estate had sufficient funds to pay all creditors in full and to return excess funds to the

Debtor in accordance with 11 U.S.C. § 726(a)(6). The Creditor was entitled to

payment of its claims. The Trustee’s Final Report properly provided for payment of

the Creditor’s claims. Accordingly, the order approving the Trustee’s Final Report

should be affirmed.

CONCLUSION

The Creditor’s late-filed claims were entitled to payment after timely-filed

claims were paid in full. The Trustee’s Final Report properly provided for payment

of the Creditor’s claims. The order approving the Final Report is therefore

AFFIRMED.

 

Appellate Case: 05-6015 Page: 5 Date Filed: 10/03/2005 Entry ID: 1958792