Opinion
22-20733
05-06-2024
IN RE: MICHAEL J. DEL NAGRO, JR. WILMA M. DEL NAGRO Debtors
MEMORANDUM OPINION AND ORDER
I. Statement of Proceedings
This Chapter 13 case is before the Court on an Objection by Chapter 13 Debtors Michael and Wilma Del Nagro ("Debtors") to Amended Claim No. 2-2 filed on November 3, 2022 by SMS Financial Recovery Services, LLC ("SMC") on September 23,2022. On December 5, 2022 SMS filed its Response to the Objection by the Debtors. A prehearing conference was held on said Objection on January 10, 2022 and the Debtors and SMS stipulated that this contested matter, at least initially, appears to be a question of law and should be submitted as an Agreed Case without an evidentiary hearing. The Court ordered that the parties file a stipulation of facts and all legal issues to be decided and upon doing so the Court would set a briefing schedule. See Order dated January 12, 2023.
The Debtors and SMS on March 13, 2023 filed their Joint Stipulation of Facts and Questions of Law. The Court on March 22, 2023 issued a scheduling Order for the filing of Briefs. The Debtors filed their Brief on April 20, 2023. SMS filed its Response Brief on May 11, 2023. The Debtors filed their Reply Brief on May 23, 2023.
II. Subject-Matter Jurisdiction and Core Proceeding
The Court has Subject-Matter Jurisdiction of this contested matter pursuant to 28 U.S.C. §1334(b) and this contested matter is a core proceeding pursuant to 28 U.S.C. §157(b)(2)(B).
III. The Stipulation filed by die Debtors and SMS
The Joint Stipulation of Facts and Questions of Law filed by the Debtors and SMS on March 13, 2023 stated as follows:
1. This Chapter 13 Proceeding was filed on 5.26.2022.
2. The Creditor filed Claim #2-1 in the amount of $137,419.69 on 6.29.2022.
3. No objections were filed to Creditor's Claim #2-1.
4. The Claims Bar Date in this case was 8.4.2022.
5. Creditor filed Claim #2-2 in the amount of $329,407.57 on 9.23.2022.
6. The Debtors objected to Claim #2-2.
7. Creditor's Proofs of Claim are based on an Illinois judgment, Case #07-L-1305 in the amount of $130,717.86 plus interest and court costs in the amount of $15,021.57, entered in the Cook County Circuit Court February 22, 2008.
8. Creditor domesticated the Illinois judgment in the Lake Superior Court, Case # 45D11-2110-CC-007052, November 18, 2021 (date of judgment entry).The Docketed award reads as follows "Court Costs plus Pre-judgment Interest: $15,021.57; Judgment: $130,717.86".
9. On May 2, 2022, Creditor filed a complaint alleging a judgment lien and seeking foreclosure of same, Case #45C01-2205-CC-002127.
10. Debtor's Chapter 13 Plan, as amended, provides for a distribution of $137,419.98 to the Creditor, with a monthly payment to Creditor of $2,369.31. (Footnotes omitted).
DEBTORS' STATEMENT OF FACTS AT ISSUE
1. Creditor's Claim #2-1 is broken down in Part 2 of the claim as follows:
a. The judgment amount of $130,717.86 and
b. Interest in the amount of $6,701.83, which is interest only on the domesticated judgment from the entry date in 2021 through 2022.7
2. Creditor did not file a Motion to extend the claims bar date. Creditor filed Claim #2-2 after the claims bar date.
3. Creditor's Claim #2-2 is broken down in Part 2 of the claim as follows:
a. The judgment amount of $130,717.86 and
b. Pre-judgment interest from 2007 and 2008 in the amounts of $934.44 and $13,116.55, respectively, and
c.2009-2020 post-judgment interest in the amount of $13,116.55 each year and
d. 2021 and 2022 interest in the amounts of $8,744.36 and $3,474.20, respectively.
4. On or around December 2, 2008, Debtor's wages began to be garnished on the judgment. The Debtor's wages were garnished from 2008-2012 and
she paid Creditor $28,729.52 in this manner.
5. Creditor's proofs of claim do not account for any payments or funds received from the Debtor, nor the other 2 judgment defendants.
6. Creditor revived the judgment in the Cook County Court 10 years, 1 month, and 1 day after the judgment was originally entered, specifically on October 22, 2018.
SMS FINANCIAL RECOVERY SERVICES, LLC STATEMENT OF FACTS AT ISSUE
1. Whether Creditor has recovered any funds from Wilma M. Del Nagro and/or other co-defendants, including through wage garnishment; and if so, whether those funds have been properly accounted for against the 2008 Judgment.
DEBTORS' STATEMENT OF LEGAL ISSUES
A. Was Creditor's claim #2-2 for pre-judgment interest from 2007 and 2008 in the amounts of $934.44 and $13,116.55 a new claim?
B. Was Creditor's claim #2-2 for post-judgment, pre-domestication interest, from 2009-2020, in the amount of $13,116.55 each year, a new claim?
C. Was Creditor's claim #2-2 untimely filed?
D. Is the amount of Creditor's claim incorrect, as the Debtor has paid $28,729.52 in garnished wages?
E. Is the Creditors Proof of Claim #2-1 an admission as to the amount due?
SMS FINANCIAL RECOVERY SERVICES, LLC STATEMENT OF LEGAL ISSUES
1. Is Creditor's Proof of Claim #2-2 considered an amendment to its Proof of Claim #2-1, or is Creditor's Proof of Claim #2-2 a new, untimely filed claim?
IV Conclusions of Law and Discussion
The Seventh Circuit Court of Appeals in the case of Matter of Unroe 937 F.2d 346 (7th Cir. 1991) set out the proper standards to be applied in deciding whether an amended claim filed after the claims bar date should be allowed. The Court stated:
In a chapter13 proceeding a creditor must file a proof of claim within ninety days of the first date set for the meeting of creditors. Bankr. R. 3002(c). The rule provides exceptions, but for those relevant here, the IRS must move for an extension within the permitted ninety days, which it did not do. Under Rule 3002(c), therefore, the IRS's claim was untimely.
Rule 3002(c), however, operates in conjunction with Bankr. R. 7015, which provides in its entirety, "Rule 15 F.R.Civ. P. applies in adversary proceedings." Any claims proceeding may not be an adversary proceeding, but Bankr. R. 9014 extends Bankr. R 7015 to "contested matters" which include Unroe's disputed claim. The bankruptcy rules therefore provide that a creditor may amend a claim if it meets Fed.R.Civ.P. 15(c)'s standard of arising out of a timely filed claim's "conduct, transaction or occurrence."
Examples of amendments permitted under Bankr. R. 7015 would include correcting the amount of tax, penalties or interest claimed in a timely filed claim.
Bankr.R. 7015 is not, however, the only possible authority for amendment. Another potential basis is for bankruptcy court's broad equitable jurisdiction. Equity jurisdiction extends even to setting aside final confirmation of a plan.
Unlike traditional equity jurisdiction, Congress has codified the equitable power of the bankruptcy courts:
The Court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this tide. No provision of this tide providing for the raising of an issue by a party in interest shall be construed to preclude a court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent abuse of power.
11. U.S.C. §105(a) (1988). Generously read, the court's power to prevent "abuse of power" includes bending the time requirements for "raising an issue." Equitable jurisdiction to permit amendments out of time does not conflict with, but rather fulfills, the statutory backdrop for bankruptcy proceedings. The bankruptcy court below therefore properly considered equitable matters outside the scope of the test of Fed.R.Civ.P. 15(c) in deciding to permit the late-filed claim as an "amendment"
In addition, a bankruptcy court's power to extend the bar date implies a corresponding power to permit late claims. A statute of limitation cannot be adjusted either before or after it expires. Here, Congress's approval of an extendable deadline, see Bankr.R. 3002(c), distinguishes the bar date from a statute of limitation, indicating that the court's equitable power includes authorization of late-filed claims.Id. 973 F.2d at 349-350 (Footnote omitted).
The bankruptcy court in the case of In re March-First. Inc. 448 B.R. 499 (Bankr. N.D. ILL. 2011), correctly summarized the opinions of the Seventh Circuit as to when a claim may be properly amended. The court stated:
Amendments to claims are analyzed under Rule 15, which applies in bankruptcy through Bankruptcy Rule 7015. See Holstein, 987 F.2d at 1270. For an amended claim to relate back under Rule 15(c)(1)(B), it must assert "a claim...that arose out of the conduct, transaction, or occurrence set out- or attempted to be set out-in the original [claim]." Fed.R.Civ.P. 15(c)(1)(B). In other words, the claim must be "sufficiently linked" to the original. Dirsch v. Rasmussen, 417 F.3d. 769, 776 (7th Cir. 2005). A sufficient link exits when the amended claim "asserts a new claim on the basis of the same core of facts." Bularz v. Pmdential ins. Co., 93 F.3d 372, 379 (7th Cir. 1996); see also Newell v. Hanks, 283 F.3d. 827, 834 (7th Cir. 2002) (noting that an amended complaint must be "based on the same core of facts advanced in the original"). If the "factual situation upon which the [claim] depends remains the same" and has been brought to the parties attention by die original, the amended claim will be timely. Henderson v. Bolanda, 253 F.3d 928, 931 (7th Cir. 2001).Id. 448 B.R. at 507-508 (footnote omitted). See e.g. In re Luera and Paz. 647 B.R. 886, 893-895 (Bankr.S.D.Tex. 2022).
The Debtors filed their Chapter 13 Petition on May 26, 2022 and the bar date to file non-governmental claims was set for August 4, 2022. SMS timely filed its initial Secured Claim No. 2-1 in the sum of $137,414.64 on June 19, 2022 based upon a judicial lien. No objection was filed by the Debtors to Claim No. 2-1 and the Debtors' plan provided for the payment of the same. SMS did not file a motion for leave to file an amended claim pursuant to Fed.R.Bk.P. 3002(c)(6).
Subsequently, SMS on September 23, 2022 filed an Amended Secured Claim No. 2-2 in the amount of $329,407.57 after the claims bar date of August 4, 2022. Thus, the Amended Claim No. 2-2 was filed only 50 days after the claims bar date of August 4, 2022 and only 104 days after Claim No. 2-1 was filed on June 19, 2022. The Amended Secured Claim No. 2-2 was based on the very same judicial lien as was set out in the initial Claim No. 2-1, the only difference being is that Amended Claim No. 2-2 added prejudgment and post judgment interest that had accrued on the judicial lien that was omitted from Claim No. 2-1. The-attachment to Claim No. 2-1 clearly avers in the foreclosure complaint by SMS versus the Debtors attached thereto, that the balance due was $311,350.94. Thus, the Debtors were apprised of the corrected balance due in Claim No. 2-1. The Debtors' plan has not yet been confirmed and a timely objection to the confirmation of the Debtors' plan has been filed by SMS, which is still pending. Thus, the Amended Claim did not impede the Plan confirmation proceedings.
The essence of the Debtors' Objection to Amended Claim No. 2-2 is that the addition of the accrued interest on the judicial lien by SMS not set out in Claim No. 2-1 constitutes a "new claim", rather than a proper amendment to Claim No. 2-1, and thus untimely. As observed above, the underlying basis or transaction for both Claim No. 2-1 and Amended Claim No. 2-2 is the very same judicial lien as set out in both claims, there only being the addition of accrued interest on the judicial lien in Amended Claim No. 2-2 which was omitted in Claim No. 2-1. The underlying transaction in both the initial Claim No. 2-1 and Amended Claim No. 2-2 is the very same judicial lien. The Amended Claim No. 2-2 is sufficiently linked and has a nexus to the initial Claim No. 2-1. The Amended Claim No. 2-2 arises out of the same core of facts, i.e. the judgment lien. The mere addition of additional accrued judgment interest over a period of years in Amended Claim No. 2-2 clearly does not constitute an untimely filed "new claim." for each year that interest was added. Thus, die Amended Claim No. 2-2 clearly relates back to the Claim No. 2-1 which was timely filed. As noted by the Seventh Circuit examples of amendments permitted under Fed. R. Bk. P. 7015 includes the correction of interest. Id. 933 F.2d at 349.
Accordingly, the Court decides that Amended Claim No. 2-2 by SMS properly relates back to Claim No. 2-1 by SMS, which was timely filed. Therefore the Objection by the Debtors to Claim No. 2-2 is hereby denied. However, the Objection by the Debtors shall be denied, in part. While the Debtors and SMS initially reported to the Court that this contested matter could be tried as an Agreed Case without the submission of evidence, the Debtors assert in their Statement of Facts at Issue and their Brief that the amount of SMS's Claim is incorrect as the Debtors have paid no less than $28,729.92 by garnishment of wages and the Claim by SMS does not account for said payments. The Debtors filed no documents or affidavits in support of their assertion. Nevertheless, the Court will permit the Debtors to pursue this facet of their Objection only as to the amount of payments allegedly made by the Debtors as to Amended Claim 2-2.
The procedure as to objections to claims is governed by Fed. Bk. P. 3007, and is deemed a contested matter pursuant to Fed. R. Bk. P. 9014. See also N. D. Ind. L.B.R. 3007-1 (b) which provides that an Objection to a proof of claim shall state with specificity the basis for the disallowance or an allowance in an amount or with a priority other than claimed. Fed. R. Bk. P. 3001(f) Evidentiary Effect, provides that a proof of Claim executed and filed in accordance with these Rules shall constitute Prima Facie evidence of the validity and amount of die claim."In bankruptcy, it is settled that a properly executed proof of claim is sufficient to shift the burden of producing evidence and to entitle the claimant to a share in the distribution of the bankruptcy estate, unless the objector comes forward with evidence contradicting die claim." In re Walters. 176 B.R. 835, 868 (Bank. N.D. Ind. 1994) (quoting. In re Global Western Development Corp.. 759 F.2d 724, 727 (9th cir. 1985)) (quoting, In re Friedman. 436 F.Supp. 234, 237 (D. Md. 1977)) (emphasis in original); In the Matter of Fisher Holding Co.. Inc.. 12 B.R. 191, 192 (Bankr. S. D. Ind. 1981). Thus, even if a party objects to a claim the evidentiary effect of Fed. R. Bk. P. 3001(f) as to die validity and amount of a claim remains in force. In re Walters. 176 B.R. at 868 (citing, In re Wells, 51 B.R. 563, 566 (Bankr. D. Colo. 1985)). More than the mere interposition of an objection is required to overcome die prima facie validity of a claim. In re Walters. 176 B.R. at 868 (citing. In re Delta Smelting & Refining Alaska. Inc.. 53 B.R. 877, 883 (Bankr. D. Alaska 1985).) The burden of going forward with the proof is on the objecting party, not the claimant, and that burden is not satisfied by die mere filing of an objection. In re Lanza. 51 B.R. 125,127 (Bankr. D. N.J. 1985), reconsid. den. 55 B.R. 354. See also. Collier on Bankruptcy, Par. 3001.09(1) and (2), pp. 3001-28-29 (Collier on Bankruptcy 16th Ed.).
SO ORDERED. And it is further, ORDERED that this contested matter is hereby set for telephonic status conference on July 11, 2023 at 1:40 o'clock P.M.