Opinion
CASE NO. 99-13443-BKC-RAM
March 17, 2004
MEMORANDUM OPINION AND ORDER SUSTAINING CHAPTER 13 TRUSTEE'S AMENDED OBJECTION TO CLAIM NO. 6 OF THE INTERNAL REVENUE SERVICE
The issue before the Court is whether a late claim in a Chapter 13 case may be allowed, over objection, if the creditor did not have notice of the bar date. For the reasons that follow, the Court holds that a plain reading of the applicable sections of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure compels the Court to sustain the objection and disallow the claim.
Factual and Procedural Background
The Debtor filed a Chapter 13 bankruptcy petition on April 13, 1999. The 180-day bar date for a governmental unit to file a claim expired on October 12, 1999. The Internal Revenue Service ("IRS") filed its proof of claim late on February 3, 2000. The Trustee filed an objection to the IRS claim on February 13, 2003, and an amended objection on April 4, 2003. In the amended objection, the Trustee asserts that the IRS claim of $7,389.61 was filed untimely and, therefore, should be stricken and disallowed.
The IRS response, filed on April 30, 2003, alleges that the IRS did not receive notice of the bankruptcy case. The record confirms that the IRS was not listed on the Court's mailing matrix dated April 16, 1999. Further, the IRS is not listed on the Certificate of Service attached to the Notice of Commencement of Case Under Chapter 13 of the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates ("Notice of Commencement"). In fact, the IRS was not aware of this bankruptcy case until January 11, 2000, when a copy of the Second Amended Plan was received from the Trustee. As such, the IRS argues that it was not accorded due process as required by Federal Rule of Bankruptcy Procedure 2002, or an opportunity to participate in this bankruptcy case until after the bar date had passed. In sum, the record supports the IRS' factual argument that its failure to timely file a proof of claim in this case resulted solely from its lack of notice. The IRS also argues that because the Debtor's current plan provides for full payment of its claim in full, the allowance of the filing of the IRS's late proof of claim will not materially or adversely affect the rights of any other creditors provided for in the plan.
The Court conducted a hearing on the Amended Objection to Claim on September 16, 2003.
Discussion A. The Code and Rules Compel Disallowance of the Late Claim
Resolution of the issue before the Court requires application of Bankruptcy Code § 502(b)(9) which provides for disallowance of late claims, F.R.Bankr.P. 3002(c), which provides the time for filing claims in a Chapter 13 case, and F.R.Bankr.P. 9006(b) (3), which provides for enlargement of time deadlines.
Section 502(b)(9) provides that a filed claim is allowed except to the extent that:
Proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1), (2), or (3) of section 726(a) of this title or under the Federal Rules of Bankruptcy Procedure, except that a claim of a governmental unit shall be timely if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide.
11 U.S.C. § 502(b)(9). (emphasis added).
Rule 3002(c)(1) specifies the deadline for governmental units to file claims and the opportunity for seeking an extension of that deadline:
A proof of claim filed by a governmental unit is timely filed if it is filed not later than 180 days after the date of the order for relief. On motion of a governmental unit before the expiration of such period and for cause shown, the court may extend the time for filing of a claim by the governmental unit.
F.R.Bankr.P. 3002(c)(1). (emphasis added).
Bankruptcy Rule 9006(b)(1) authorizes the court to enlarge certain deadlines. Under that Rule, even a motion to extend a deadline filedafter the deadline, may be granted if the failure to act was the result of excusable neglect. If applicable, this rule would easily fit the facts here since, with no notice, the IRS' failure to file a timely claim or file a motion for extension before the deadline would constitute excusable neglect.
The problem is the applicable rule is not 9006(b)(1), but rather 9006(b)(3) which provides:
The court may enlarge the time for taking action under Rule 1006(b)(2), 1017(e), 30Q2(c), 4003(b), 4004(a), 8002 and 9003, only to the extent and under the conditions stated in these rules.
Rule 9006(b)(3) (emphasis added). Since the "condition stated" in Rule 3002(c) is the filing of a motion for extension prior to the bar date, the excusable neglect standard does not apply.
The above quoted statute and rules were thoroughly analyzed and applied to facts similar to those here in In re Brogden, 274 B.R. 287 (Bankr. M.D.Tenn. 2001). The Court finds Judge Lundin's analysis in Brogden compelling and persuasive. "Section 502(b)(9) and Bankruptcy Rules 3002(c) and 9006(b)(3) are a comprehensive, unambiguous scheme that disallows untimely filed claims in Chapter 13 cases." Id. at 289. " [T] he framework created by the interrelationship between § 502(b)(9) and Rules 3002(c)(1) and 9006(b)(3) clearly provides for a 180-day period in which a proof of claim by a governmental unit such as the IRS must be filed in order to be timely. This period is capable of expansion only upon motion by the government made prior to expiration of the 180-day period and accompanied by a showing of cause." Id. (quoting Gardenhire v. IRS (In re Gardenhire), 209 F.3d 1145, 1148 (9th Cir. 2000)).
As Judge Lundin notes, Congress does not make any exception to the 180-day deadline for failure to receive notice in a Chapter 13 case. "In Chapter 13 cases, the Code and Rules make no exception to the 180-day timeliness deadline when faulty notice or other circumstances disable a governmental creditor to file a timely claim." Id. Judge Lundin explains that Congress' omission was not accidental:
This omission seems not inadvertent because the Code explicitly allows tardy claims in Chapter 7 cases when notice fails. Section 502(b)(9) itself, through nested exceptions and a cross reference to § 726(a), permits allowance of tardily-filed claims in Chapter 7 cases when "the creditor that holds such claim did not have notice or actual knowledge of the case in time for timely filing of a proof of such claim." 11 U.S.C. § 726(a)(2)(C)(i)(incorpo-(rated by reference in 11 U.S.C. § 502 (b)(9)). This statutory exception to the disallowance of untimely filed claims does not apply in Chapter 13 cases.
Id. at 289-290.
B. There is No Equitable Exception
This Court agrees with Brogden that "the careful language of § 502(b)(9) and Rules 3002 and 9006 precludes the IRS's invitation to construct equitable exceptions to the 180-day timeliness requirement."Id. at 290. This Court also agrees that cases finding an equitable exception, most notably, IRS v. Hildebrand, 245 B.R. 287 (M.D.Tenn. 2000) are not persuasive. In particular, the district court in Hildebrand relied heavily on the Ninth Circuit Bankruptcy Appellate Panel's decision in Gardenhire v. IRS. 220 B.R. 376 (9th Cir. BAP 1998). After Hildebrand was decided, the Ninth Circuit Court of Appeals reversed the BAP decision in Gardenhire v. IRS. 209 F.3d 1145 (9th Cir. 2000). Cases decided after the Ninth Circuit's decision have rejected Hildebrand. Brogden, 274 B.R. at 290; In re Bennett, 278 B.R. 764, 765-66 (Bankr. M.D.Tenn. 2001).
C. Whether the Late Claim will be Discharged is Not Before the Court
An obvious concern arising from disallowance of a late claim is that the claim will be discharged under 11 U.S.C. § 1328, which provides in pertinent part that "the court shall grant the debtor a discharge of all debts . . . disallowed under § 502." 11 U.S.C. § 1328(a) (emphasis added). This result would certainly appear harsh if a claim is disallowed because it was filed late and it was filed late solely because the creditor had no notice. However, the case at bar is not about discharge of debt. Like the court in Brogden, this court expresses no opinion as to whether Congress could discharge the claim of the IRS under the circumstances of this case. Brogden, 274 B.R. at 292-93.
With respect to the IRS's untimely claim in this Chapter 13 case, § 502(b)(9) does not offend "fundamental fairness" or the IRS's statutory right to notice because, as Judge Lundin stated, the Bankruptcy Code arms the IRS to protect its rights notwithstanding disallowance of its claim. Id. at 293. "Unlike the liquidating Chapter 7 circumstances, . . . disability to participate in plan distributions in this Chapter 13 case is not dispositive of the IRS's right to recover its debt from the debtor or from the debtor's property." Id. As Judge Lundin aptly concludes, "[s]ection 502(b)(9) as implemented by Bankruptcy Rules 3002(c) and 9006 plainly provides that an untimely claim is disallowed in a Chapter 13 case without regard to why the claim was untimely. Congress defined this outcome with the enactment of § 502(b)(9) in 1994 and there is no resort to equitable exceptions. `Fundamental fairness' is not implicated because the Bankruptcy Code otherwise preserves the IRS's collection rights against the debtor." Id. at 294.
Judge Lundin notes that the disallowance rule in § 502(b)(9) is balanced by at least six remedies, almost all of which offer substantial advantages to the IRS over participation in plan payments:
1. Relief from stay for cause under § 362(d)(1);
2. Dismissal for cause under § 1307(c);
3. Conversion to Chapter 7 under § 1307(c);
4. Relief from the confirmation order;
5. Revocation of confirmation under § 1330; and
6. Exception to discharge.
D. Possible Application of Rule 3004
One other issue deserves mention. In this case the Debtor supported the IRS and urged the Court to overrule the Trustee's objection. As discussed, the Court cannot allow the late claim as filed by the IRS. There is, however, a possible alternative basis for relief where, as here, a debtor wants to treat a late claim in his or her Chapter 13 plan, namely the filing of a motion to extend time for the debtor to file the late claim under F.R.Bankr.P. 3004.
Rule 3004 provides as follows:
If a creditor fails to file a proof of claim on or before the first date set for the meeting of creditors called pursuant to § 341(a) of the Code, the debtor or trustee may do so in the name of the creditor, within 30 days after expiration of the time for filing claims prescribed by Rule 3002(c) or 3003(c), whichever is applicable. The clerk shall forthwith mail notice of the filing to the creditor, the debtor and the trustee. A proof of claim filed by a creditor pursuant to Rule 3002 or Rule 3003(c), shall supersede the proof filed by the debtor or trustee.
Use of this section could provide the Debtor the ability to include a creditor in a plan, even if the creditor fails to timely file a claim. Unlike Rule 3002(c), the deadline in Rule 3004 may be extended under the less stringent provision of Fed.R.Bank.P. 9006(b)(1). Thus, a court could grant a motion by the debtor to file a late claim for a creditor under Rule 3004, even after the deadline in Rule 3004, if the debtor could prove excusable neglect. It may not be so easy, however, even if the creditor had no notice of the bar date, because the court would not be reviewing the excusable neglect of the creditor who did not receive notice, but rather would have to find that the debtor's failure to timely file the Rule 3004 claim, or timely file a motion for extension, resulted from the debtor's excusable neglect. In any event, the Court includes this discussion simply to note the possible use of Rule 3004 under facts similar to these. In this case, the Debtor did not file a claim for the IRS or a motion to extend the time to do so.
Based upon the foregoing analysis, it is —
ORDERED that the Chapter 13 Trustee's Amended Objection to Claim No. 6 of the Internal Revenue Service is sustained. Claim No. 6 filed by the IRS is disallowed.