IN RE HOUSER, (Bankr.S.D.Ohio 1999)

Citation Codes

Equivalent Citations

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Docket Number

No. 98-50851.

Attorney(S)

Jeffrey W. Farkas, Columbus, OH, for debtor. Frederick M. Luper, Columbus, OH, Chapter 7 Trustee.

Acts

Bankruptcy — Liquidation — Collection, Liquidation, And Distribution Of The Estate — Distribution Of Property Of The Estate

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Smart Summary

Factual and Procedural Background

The Chapter 7 Trustee of the bankruptcy estate of Charles and Nancy Houser filed a Motion seeking an order authorizing creditors to file claims against surplus funds remaining in the estate after payment of prior claims. The debtors opposed this motion. The matter was heard on October 18, 1999, where the parties presented arguments and evidence. The Court took the matter under advisement and subsequently issued this order.

Legal Issues Presented

Whether creditors should be authorized to file tardy (late) unsecured claims against surplus funds in a Chapter 7 bankruptcy estate.
Whether the Court should set a deadline for filing such tardy claims prior to distribution of surplus funds to the debtor under 11 U.S.C. § 726(a)(6).

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re Glenwood Medical Group, Ltd., 211 B.R. 282 (Bankr. N.D. Ill. 1997)	Recognition that tardily filed unsecured claims are entitled to distribution prior to debtor receiving surplus funds under 11 U.S.C. § 726(a)(6).	The Court relied on this precedent to affirm that tardily filed claims have priority over debtor distributions and to support granting the Trustee's motion to allow filing of late claims.

Court's Reasoning and Analysis

The Court analyzed the relevant Bankruptcy Code provisions, particularly 11 U.S.C. § 726(a)(1) through (6), which govern distribution priorities in bankruptcy estates. It noted that after priority claims and timely filed unsecured claims are paid, tardily filed unsecured claims are entitled to payment before any distribution to the debtor under § 726(a)(6). The Court acknowledged that prior Bankruptcy Rules (Fed.R.Bankr.P. 3002(c)(6) and 2002(a)(4)) that provided mechanisms and notice requirements for filing claims against surplus funds were eliminated in the 1996 amendments to the Bankruptcy Code without explanation. The Court cited authoritative commentary (9 Collier on Bankruptcy) to conclude that there is no prohibition on filing late claims and no requirement for court authorization or notice to file such claims. Nevertheless, the Court emphasized the practical necessity for the trustee to have a deadline for filing tardy claims to properly administer the estate and avoid premature distribution to the debtor. Based on this reasoning, the Court granted the Trustee’s motion and set a 30-day deadline for creditors to file claims against the surplus funds.

Holding and Implications

The Court GRANTED the Trustee's Motion For An Order Authorizing Creditors Opportunity To File Claims Against Surplus Funds.

The Court ordered that creditors have thirty (30) days from the entry of the order to file tardy claims against the surplus funds remaining in the bankruptcy estate. This decision ensures that tardily filed unsecured claims receive distribution priority over the debtor's receipt of surplus funds, consistent with the Bankruptcy Code. No new legal precedent was established; rather, the order clarifies procedural administration in light of the elimination of previous Bankruptcy Rules governing surplus claim filings.

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In re Charles R. HOUSER and Nancy C. Houser, Debtors.

ORDER AUTHORIZING CREDITORS TO FILE CLAIMS AGAINST SURPLUS

CALHOUN, Bankruptcy Judge

The matter is before the Court on the Motion For An Order Authorizing Creditors Opportunity To File Claims Against Surplus Funds filed by Frederick M. Luper, the Chapter 7 Trustee of the bankruptcy estate of Charles and Nancy Houser. Debtors filed their opposition to the Trustee's Motion.

The matter came on for hearing on October 18, 1999, at which time the parties were afforded an opportunity to present argument and evidence in support of their respective positions. After the October 18, 1999 hearing, the Court took the matter under advisement. Upon a review of the applicable sections of the Bankruptcy Code, and case authorities, the Court finds that the Trustee's Motion is well taken and should be granted.

11 U.S.C. § 726(a)(6) indicates that property of the estate shall be distributed to the debtor if funds remain after payment of the claims set forth in 11 U.S.C. § 726(a)(1) through (5). 11 U.S.C. § 726(a)(3) states that after payment of priority claims, and timely filed unsecured claims, payment will be made to "any allowed unsecured claim proof of which is tardily filed under section 501(a) of this title. . ."

Tardily filed unsecured claims are entitled to distribution from the estate, and are to be paid prior to the Trustee making any distribution to the debtor under 11 U.S.C. § 726(a)(6). See, e.g., In re Glenwood Medical Group, Ltd., 211 B.R. 282, 286 (Bankr.N.D.Ill. 1997). The Trustee's Motion requests that the Court set a deadline for creditors to file "tardy" claims against the surplus funds currently in this bankruptcy estate. Allowing creditors an opportunity to file tardy claims is consistent with the distribution scheme established in 11 U.S.C. § 726, and is in accordance with the statutory scheme whereby tardily filed unsecured claims are entitled to payment prior to any distributions being made to the debtor.

When the Bankruptcy Code was amended in 1996, Fed.R.Bankr.P. 3002(c)(6) was eliminated. That provision had provided that the court could grant an extension of time for creditors to file claims against a surplus remaining in a chapter 7 estate after timely filed claims had been paid in full. Similarly, former Fed.R.Bankr.P. 2002(a)(4) provided a twenty day notice period for the date fixed for filing claims against the surplus. Former Fed.R.Bankr.P. 2002(a)(4) was also deleted with the 1996 Amendments to the Bankruptcy Code.

While no reason was given for eliminating former Rules 3002(c)(6) and 2002(a)(4), the amendments to the Code had made it clear that there was no "prohibition" against filing late claims. It was therefore not necessary for the court to either authorize, or give notice of a deadline for filing tardy claims. See, 9 COLLIER ON BANKRUPTCY, ¶ 3002.RH[3], p. 3002-20 (5th ed. 1999). It is therefore not necessary for the Court to specifically authorize creditors to file tardy claims, or to set a corresponding deadline. However, it is important for a Chapter 7 trustee's administration of an estate with surplus funds that a deadline exist for filing tardy claims prior to the trustee making a distribution to the debtor pursuant to 11 U.S.C. § 726(a)(6).

Accordingly, the Motion For An Order Authorizing Creditors Opportunity To File Claims Against Surplus Funds is GRANTED, and creditors will be entitled to a period of thirty (30) days from entry of this Order to file claims against the anticipated surplus in this bankruptcy estate.

IT IS SO ORDERED.