Bankruptcy Court Says Call First Before Seeking Attorney’s Fees

The Bankruptcy Court for the Eastern District of Michigan recently ruled whether a creditor must pay attorney’s fees to the objecting party when the creditor filed a claim with deficient information. In re Ball, No. 17-22574 (Bankr. E.D.MI. Jan. 22, 2019).

The issue was brought before the court by the chapter 13 trustee. A creditor, Financial Edge Credit Union (FECU), was owed a debt for overdraft charges which was an open-end consumer debt. FECU filed a deficient proof of claim that only attached a copy of the deposit account contract and did not include the last payment date or the date of the debtor’s last transaction.

Pursuant to Bankruptcy Rule 3001(c)(3)(A), claims for open-end consumer debt must attach a statement including applicable information for the account including:

(i) the name of the entity from whom the creditor purchased the account;

(ii) the name of the entity to whom the debt was owed at the time of an account holder’s last transaction on the account;

(iii) the date of an account holder’s last transaction;

(iv) the date of the last payment on the account; and

(v) the date on which the account was charged to profit and loss.

The chapter 13 trustee objected to the claim, per his duty under Midland Funding, LLC v. Johnson, 137 S. Ct. 1407 (2017). Since pertinent information was not attached to the claim, he needed to determine whether the statute of limitations precluded the claim. FECU amended their claim the next day with the missing information. The Trustee withdrew the objection to claim.

The trustee was not happy. The trustee filed a motion to recover his costs against FECU because he had to file the original objection. The trustee asked for fees under Rule 3001(c)(2)(D)(ii) in the amount of $400.00.

FECU argued 1) they amended the claim and 2) that the trustee should have called or emailed them pointing out the deficiency and they would have fixed it without need for an objection. The trustee argued he doesn’t have time for informal requests when reviewing thousands of claims per year.

The court said both sides were right and wrong. FECU started the problem by filing a deficient proof of claim. They did not include the dates of the last transaction and payments. However, the trustee should have called or written FECU with a request before filing the objection to claim. The court awarded the trustee 50% of what he requested for a total of $200.00.

Practice Pointers:

• Send an email (preferably from a staff member to avoid witness issues) asking the creditor to correct errors or omissions in their filed claims. Give them a short, but reasonable, time to respond and correct the claim before filing an objection.
• Keep a record of the time spent reviewing the original claim, contacting the client, sending the email and attending court so you can be properly compensated.
• Keep a record of deficient claims to show pattern and practice evidence in future proceedings before the court.

A copy of the opinion is here:  In re Ball opinion