OPINION AND ORDER
Before the Court are six objections to claims that exhibit the most common maladies in this area of bankruptcy law. Because the same law applies to each of these objections, the Court will conjoin the objections for its order. The Court has jurisdiction over these objections under 28 U.S.C. § 1334 and 28 U.S.C. § 157, and the resolution of the objections is a core proceeding under 28 U.S.C. § 157(b)(2)(B). The following opinion constitutes findings of fact and conclusions of law in accordance with Federal Rules of Bankruptcy Procedure 7052 and 9014.
Although each of the objections before the Court exhibit common problems, each
Claims, generally
Under the bankruptcy code, a claim is defined as any right to payment. 11 U.S.C. § 101(5); Dove-Nation v. eCast Settlement Corp. (In re Dove-Nation),
Under the Federal Rules of Bankruptcy Procedure, a proof of claim is a written statement that sets forth a creditor’s claim and shall conform substantially to the Official Form. Fed. R. Bankr.P. 3001(a)., Further, when the claim is based on a writing, the original or a duplicate shall be filed with the claim. Fed. R. Bankr.P. 3001(c). If the writing has been lost or destroyed, a supporting statement must be filed with the claim. Id. According to the rules, “[a] proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.” Fed. R. Bankr.P. 3001(f). Prima facie validity
simply means that all the facts in the claim are presumed to be true unless disproved by some evidence to the contrary. If a claim’s prima facie validity is lost, then the creditor has the initial burden of proving that the claim exists and the amount of that claim. Failure to fulfill this burden results in the disal-lowance of a creditor’s claim.
Prima facie validity is established by substantial compliance with “the spirit of the applicable rules.... ” In re Dove-Nation,
Ultimately, the court must balance “the need to provide debtors with sufficient information to assess claims against the goal of not unduly burdening claimants.” In re Marcita Taylor,
to come forward with the original credit card agreement and a manifestation of each electronic recording of a transaction, whether it be in the form of the signed receipt the debtor retains for his or her personal records or the electronic transmission of each use that the credit card issuer records, would unduly burden the parties and would inundate the Court with documents. Such a compilation of information would be lengthy and overly burdensome for all concerned.
In re Cluff,
To fulfill the requirements of the bankruptcy rule and Official Form, and to give debtors and trustees sufficient information to ascertain the accuracy of the claim asserted, the Cluff court determined that a summary should:
(i) include the amount of the debts; (ii) indicate the name and account number of the debtor; (iii) be in the form of a business record or some other equally reliable format; and (iv) if the claim includes charges such as interest, late fees and attorney’s fees, the summary should include a statement giving a breakdown of those elements.
In re Cluff,
A proof of claim that does not meet prima facie validity is not disallowed simply because a party in interest filed an objection. The creditor’s burden may be met on the face of the proof of claim. Proofs of claims provide “at least some evidence of a demand for payment from the estate and includes the creditor’s name, the account number, and amount of the debt.” In re Cluff,
In summary, every claimant and every objecting party must proceed under the same burdens of proof. As a base line, a proof of claim is deemed allowed unless a party in interest objects to the claim. 11 U.S.C. § 502(a). Additionally, if the proof of claim conforms substantially with the bankruptcy rules, the proof of claim is considered prima facie evidence of the validity and amount of the claim. Fed. Rule Bankr.P. 3001(f). The burden of proof then shifts to the objecting party to prove one of the nine exceptions set forth in § 502(b) of the bankruptcy code. 11 U.S.C. § 502(b)(l)-(9). Even if the claimant was not entitled to prima facie evidence of the claim, the proof of claim would still be some evidence of the claimant’s claim. In that case, the objecting party must come forward with “some evidence to meet, overcome, or at least equalize the statements on the proof of claim.” In re Cluff,
Specific Claims and Objections
The three bankruptcy cases referenced in this opinion feature five objections to claims that are currently before the Court. The Court will address each claim and its respective objection separately.
Ralston: debtor versus Kansas City Water Services, claimant
In this case, the debtor’s first objection is to Kansas City Water’s claim against the debtor. According to the debt-
In addition to the debtor’s objection to Kansas City Water’s claim that was before the Court, at the hearing the debtor introduced Kansas City Water’s proof of claim form and a letter from the debtor’s counsel to Kansas City Water disputing any liability on the debt and requesting additional verification of the debt through billing statements and a copy of the underlying credit application or agreement. Based on the information before it, including Kansas City Water’s certificate of service that it provided the documents to support its claim to the debtor’s counsel, the Court finds that Kansas City Water has presented prima facie evidence of a claim. The burden of proof now shifts to the debtor to prove one of the exceptions under § 502(b).
The debtor testified at the hearing that the water service that is the subject of Kansas City Water’s claim against the debtor was never turned on in the debtor’s name, and that his tenant’s obligation to Kansas City Water was not his obligation. As such, the obligation was not enforceable against the debtor. Although not identified by the debtor, the Court finds that this is an exception under § 502(b)(1); specifically, that the claim is unenforceable against the debtor or property of the debt- or. Kansas City Water did not appear at the hearing and, ergo, did not meet its burden of persuasion to establish its entitlement to the claim. The Court sustains the debtor’s objection and disallows Kansas City Water’s claim against the debtor in its entirety.
Ralston: debtor versus Advanta Bank Corp., claimant
The debtor’s second objection in this case is to Advanta Bank’s claim against the debtor. According to the debt- or, Advanta Bank is not the party with the legal right to enforce the claim because the debt was sold to a securitized trust. The debtor asserts that the collection agent of the successor servicer is not the creditor or owner of the claim. The debtor scheduled Advanta Bank on his Schedule F as having a disputed claim of $1.00. Advanta Bank filed its proof of claim and included on the face of the claim form the name of the creditor, Advanta Bank; the address for notices, in care of Resurgent Capital Services; the name of the debtor; the last four digits of the creditor’s account identifier; and the amount of the claim: $3396.54. The basis for the claim was listed as “Unsecured.” The claim was signed by a Claims Processor for Resurgent Capital Services with the indication that the signor was the creditor’s authorized agent.
Advanta Bank attached to its proof of claim (1) an account detail, (2) a Notice of Termination of Advanta Bank Corp. as Servicer and Appointment of Successor Servicer [Notice of Termination], and (3) a Limited Power of Attorney. The account detail included the amount of the debt as of the date the bankruptcy case was filed; the name and account number of the debt- or; a breakdown of the principal, interest, and fees charged; the date the debt was charged off by the original creditor; and a
1. there is a debt owed by the debtor to Advanta Bank in the amount of $3396.54;
2. that Resurgent Capital Services is the servicing agent for the account;
3. that Advanta Bank was the servicing arm of Advanta Business Card Master Trust;
4. that Deutsch Bank was the Indenture Trustee of Advanta Business Card Master Trust;
5. that the FDIC was appointed receiver for Advanta Bank;
6. that Deutsche Bank, as Indenture Trustee, appointed CardWorks Servicing LLC to commence the duties of Advanta Bank; and
7. that CardWorks Servicing LLC retained Resurgent Capital Services to service its accounts.
In addition to the debtor’s objection to Advanta Bank’s claim that was before the Court, at the hearing the debtor introduced Advanta Bank’s proof of claim form and a letter from the debtor’s counsel to Advanta Bank disputing that Advanta Bank owned the subject debt and requesting documentation in support of proof of ownership. Based on the information before it, the Court finds that the Account Detail and other attachments provided by Advanta Bank provide a sufficient summary for the debtor to ascertain the basis and accuracy of Advanta Bank’s claim and that Advanta Bank has presented prima facie evidence of a claim. The burden of proof now shifts to the debtor to prove one of the exceptions under § 502(b).
The debtor’s primary argument appears to be that Advanta Bank does not have a right to payment from, or a claim against, the debtor. According to the debtor, the subject debt may be owned by a trust, but the debtor is not able to ascertain the identity of that trust through the documents attached to Advanta Bank’s proof of claim. Additionally, the debtor argued that the documents attached to the proof of claim conflicted with the actual proof of claim. The debtor did not identify, and the Court is not able to glean from the debtor’s arguments, which exception listed in § 502(b) allegedly applies in this situation. If the debtor’s argument is based on § 502(b)(1), as in his previous objection, he presented no evidence to rebut Advanta Bank’s claim, much less its entitlement to have its claim be considered prima facie evidence as to the validity and amount of the claim. The Court needs at least some evidence to “meet, overcome, or at least equalize” the creditor’s claim. In this instance, the only evidence before the Court are the documents attached to Ad-vanta Bank’s claim, which the Court finds sufficient to establish Advanta Bank’s claim against the debtor. Without any additional evidence, the Court overrules the debtor’s objection and allows Advanta Bank’s claim in its entirety.
The debtor’s final objection in this case is to PRA’s claim against the debtor. According to the debtor, the debtor does not recognize PRA, successor in interest to Citibank, N.A. (THD Consumer) and did not include the claim on his schedules. According to the debtor’s objection, he has not had a credit relationship with a company named “THD Consumer.” PRA filed its proof of claim and included on the face of the claim form the name of the creditor and the debtor, the last four digits of the creditor’s account identifier, the amount of the claim: $5809.11, and a statement that the debtor may have scheduled the account as “THD Consumer.” The basis for the claim was listed as “Credit Card,” and the creditor attached an Account Summary and Limited Power of Attorney. The Account Summary included the amount of the debt; the name and account number of the debtor; a breakdown of the principal, interest, and fees charged; the date the debt was charged off; the name of the original creditor—THD Consumer; an indication that PRA purchased the account from Citibank, N.A. after the account was charged off; and the date of the original loan. The Limited Power of Attorney designated PRA Receivables Management, LLC to service the account.
In addition to the debtor’s objection to PRA’s claim that was before the Court, at the hearing the debtor introduced PRA’s proof of claim form and a letter from the debtor’s counsel to PRA requesting documentation relating to the assignment of the debt to PRA and stating that the debtor does not recognize or acknowledge the debt. Based on the information before it, the Court finds that PRA has presented prima facie evidence of the validity and amount of its claim. The burden of proof now shifts to the debtor to prove one of the exceptions under § 502(b).
The debtor testified at the hearing that he did not recognize THD Consumer and disputed any obligation he may have for its claim. Again, although not identified by the debtor, the Court finds that this is an exception under § 502(b)(1); specifically, that the claim is unenforceable against the debtor or property of the debt- or. With sufficient proof, the burden of persuasion would then shift to PRA to establish its entitlement to the claim. However, PRA listed its identifier for this claim on the face of its proof Of claim as 0681. Despite the debtor’s inability to recognize this claim, the debtor identified on his Schedule F a creditor with an account number that also ended in 0681: Home Depot Credit Services. The debtor listed this claim as disputed in the amount of $1.00. The Court finds that PRA and the debtor both refer to the same account when they listed either “THD Consumer” or “Home Depot Credit Services.” Because the debtor did not present any evidence to prove an exception under § 502(b), other than his lack of recognition, the Court overrules the debtor’s objection to PRA’s claim. However, based on the debtor’s confusion and the fact that he scheduled the Home Depot claim as disputed, the Court overrules the debtor’s objection without prejudice to the debtor filing another objection citing a proper exception under § 502(b).
Kim/Park: debtors versus Bank of America NA, claimant
In this case, the debtors objected to and disputed the claim of Bank of America, N.A. because the asserted debt by Bank of America was not substantiated on its proof of claim. Bank of America filed its proof of claim and included on the face of the claim form the name of the
In addition to the debtors’ objection to Bank of America’s claim that was before the Court, at the hearing the debtors introduced Bank of America’s proof of claim form and a letter from the debtors’ counsel to Bank of America disputing the debt and requesting additional verification of the debt through billing statements. Based on the information before it, the Court finds that Bank of America has a valid claim but the claim is not prima facie evidence of a claim because Bank of America failed to attach an account record to its proof of claim. The Court further finds that the debtors have introduced the modicum of evidence required to contradict at least one element of the claim, placing the burden on Bank of America to prove its claim by a preponderance of the evidence.
Because Bank of America failed to appear at the hearing to meet its burden, the Court sustains the debtors’ objection to Bank of America’s claim, but only in part. The Court is troubled by the debtors’ own admission on Schedule F that they owe an undisputed debt to Bank of America for credit card purchases in the amount of $678.00. Bank of America had the burden of proof to establish its entitlement to its claim and would have had the opportunity to introduce the debtors’ schedules as additional evidence to support its claim. In re Dove-Nation,
The doctrine of judicial estoppel is an equitable doctrine available to a court at its discretion to prevent the “improper use of judicial machinery.” New Hampshire v. Maine,
the apparent majority view is that the doctrine applies only where the allegedly inconsistent prior assertion was accepted or adopted by the court in the earlier litigation, [citations omitted] Under the minority approach, on the other hand, judicial estoppel applies even where no court has accepted the prior assertion if the party taking contrary positions demonstrates an intent to play “fast and loose” with the courts.
Muller: chapter 7 trustee versus GMAC, claimant
In this chapter 7 case, the trustee objected to GMAC’s claim for two reasons: first, because GMAC filed its claim as a secured claim and has “failed to demonstrate that it has exercised its rights and remedies with regard to its collateral”; second, because the debtors did not identify the subject vehicle or list GMAC as a creditor in their schedules. GMAC filed its proof of claim and included on the face of the claim form the name of the creditor and one of the debtors, the last four digits of the creditor’s account identifier, and the amount of the claim: $8858.13. GMAC listed the basis for the claim as “Automobile Financing,” asserted that its claim was a fully secured claim, and stated that the basis for perfection of its claim was a certificate of title and lien notice. GMAC also attached to its claim a copy of the Retail Installment Sale Contract and Certificate of Title. The Retail Installment Sale Contract names one of the debtors as one of the parties to the agreement and is signed by the debtor. The Certificate of Title is also in the name of one of the debtors and reflects that GMAC is the First Lienholder on the face of the title.
In addition to the trustee’s objection to GMAC’s claim that was filed with the Court, at the hearing the trustee introduced a letter of transmittal from Ally Financial to the debtors’ son referencing the subject vehicle and a copy of the Certificate of Title to the vehicle that indicated that GMAC released its lien on the vehicle in July 2011. Based on the information before it, the Court finds that GMAC has presented prima facie evidence of the validity and amount of its claim. The burden of proof now shifts to the trustee to prove one of the exceptions under § 502(b).
The trustee objected to GMAC’s claim primarily because GMAC filed its claim as a secured claim and has “failed to demonstrate that [GMAC] has exercised its rights and remedies with regard to its collateral.” To have a secured claim, a creditor must have not only a lien on the property, but the property must also be property of the bankruptcy estate. In re Todd Michael Taylor,
For a court to properly determine the rights of a creditor holding a secured claim, it must perform three separate steps, only the first of which involves the exceptions to the allowance of a claim under § 502(b). Id. at 383. First, the court must determine whether the creditor has a claim or right to payment and, if so, the amount of the claim. If the creditor does not have a right to payment, the inquiry is complete. This is the claims process that
The trustee’s objection to GMAC’s claim simply because GMAC has a security interest in the property does not implicate any statutory reason for denying the claim. It appears to the Court that the trustee objected to the claim as a secured claim for equitable purposes: to make sure that GMAC does not share in the assets of the estate and, instead, looks to the value of the collateral to satisfy its claim. However, chapter 7 contains no provisions that would allow a trustee to make distributions on account of a secured claim, regardless. In re Todd Michael Taylor,
The first step under this framework is to have the court determine the secured and unsecured values relative to a creditor’s claim. The party requesting that determination of value may file a motion under Rule 3012. After the court conducts a hearing, if the creditor’s claim is fully secured, the trustee would have no further obligation concerning the property or the creditor’s claim. If, instead, the creditor’s claim is over-secured, the trustee may “collect and reduce to money the property of the estate for which the trustee serves” under § 704(a)(1); pay the value of the creditor’s secured claim to the creditor, as determined by § 506(a); and distribute the remainder of the proceeds in accordance with § 726, the distribution provision for property of the estate in a chapter 7 case. Finally, if the creditor’s claim is underse-cured, the creditor would be able to share in the distributions to unsecured creditors to the extent of the unsecured portion of its claim.
A different procedure is implicated if the subject collateral is abandoned or was never part of the estate. In that instance, the creditor’s entire claim would be categorized as unsecured. Id. at 383 (“In order to have a secured claim, the creditor must not only have a lien upon property but its collateral must also be property of the bankruptcy estate.”). To allow the creditor to share in the distribution from the estate as an unsecured claim holder, while also holding a security interest in property of the debtor outside the estate, creates the potential inequity suggested by the trustee’s objection in this case. However, the code provides for this situation, too. Section 510(c) states that the court, after notice and a hearing, may equitably subordinate for purposes of distribution all or part of an allowed claim (secured or unsecured) to all or part of another allowed claim. 11 U.S.C. § 510(c); In re Todd Michael Taylor,
In support of his objection to GMAC’s claim because the debtors did not identify the subject vehicle or list GMAC as a creditor in their schedules, the trustee stated that during his investigation of this case, he learned that the subject vehicle had been in the possession of and driven by the debtors’ son. The trustee testified that he discovered that before the debtors filed their bankruptcy petition, the son had sold the vehicle and satisfied the debt to GMAC. Hence, the debtors did not list the vehicle or schedule GMAC as a creditor on their bankruptcy petition and schedules. The accuracy of the trustee’s understanding is reflected on the documents the trustee introduced in support of his objection: a copy of the Certificate of Title to the vehicle that indicated that GMAC had released its lien. Although the trustee did not identify a specific exception under § 502(b), the Court finds that this is an exception under § 502(b)(1); specifically, that the claim is unenforceable against the debtors or property of the debtors because GMAC’s lien was released and the obligation satisfied. GMAC did not appear at the hearing and, consequently, did not meet its burden of persuasion to establish its entitlement to the claim. For the reasons stated, the Court sustains the trustee’s objection to GMAC’s claim under § 502(b)(1) and disallows GMAC’s claim in its entirety, but overrules that portion of the trustee’s objection to GMAC’s claim that was based solely on GMAC filing the claim as a secured claim.
Conclusion
To conclude, the Court would like to share the words of Judge Boulden from the Cluff case:
In this decision, the Court has attempted to strike a balance as well as to provide both debtors and creditors clear standards to interpret and apply, but, as the length of this opinion demonstrates, a bright line test that covers the multiplicity of variations in claims is not possible. Employing these standards should provide debtors and creditors with a clear and helpful pathway to proceed through the thicket of claims disal-lowance.
In re Cluff,
IT IS SO ORDERED.