Opinion ID: 552817
Heading Depth: 2
Heading Rank: 3

Heading: Participation in Distribution of Assets

Text: 34 Zidell argues that it should be allowed to participate in the distribution of assets on the same level as those who filed timely claims. Zidell bases this argument on 11 U.S.C. Sec. 726(a)(2)(C) which provides that unsecured creditors who filed late claims will be paid at the same time as unsecured creditors who filed timely claims as long as (1) the creditor did not have notice or actual knowledge of the case in time to file a timely claim and (2) proof of the claim is filed before distribution occurs. 35 Zidell clearly satisfies the second part of the statute as it filed its claim before the interim distribution occurred. However, Zidell knew of CAL's bankruptcy in early August of 1986, over two months before the claims bar date of September 30, 1986. Zidell had knowledge of the case in time to file a timely claim. Therefore, the district court did not err in denying Zidell's request for participation under Sec. 726. 36 Zidell argues that lack of knowledge of the no-asset nature of the case means lack of notice of the claims bar date. This interpretation is not consistent with the statutory language and is not supported by case law. For example one case interpreting Sec. 726(c) found that actual knowledge of the bankruptcy proceeding before the claims bar date precludes a creditor from seeking relief under Sec. 726. In re Kragness, 82 B.R. 553, 555 (Bankr.D.Or.1988) (mem.) (relief denied to creditor that has actual knowledge of bankruptcy but is not aware of its claim). Actual knowledge was also the standard applied in In re Columbia Ribbon & Carbon Manufacturing Co., Inc., 54 B.R. 714 (Bankr.S.D.N.Y.1985) where the creditor was entitled to relief because it had no actual knowledge of the bankruptcy before the claims bar date and had filed its claim before final distribution. 37 Zidell's citation to the legislative history of Sec. 726(a) does not alter this conclusion. The House Report cited by Zidell states that the subordination penalty for late filing should not apply where tardiness was due to lack of notice or knowledge of the case and was not the result of a failure to act by the creditor. Sen.Rept. No. 989, 95th Cong., 2d Sess. 97, reprinted in U.S.Code Cong. & Admin.News 5787, 5883. This legislative history clearly indicates that if a creditor knows of the bankruptcy, it does not qualify for relief under Sec. 726. 38 For the above reasons, we affirm the decision of the district court. 39 AFFIRMED.