Opinion
No. 99-16228-SSM
August 25, 2000
Karen A. Blatter, West Warwick, RI, Debtor pro se.
Robert K. Coulter, Alexandria, VA, Counsel for the Internal Revenue Service.
Gerald M. O'Donnell, Esquire, Alexandria, Virginia, Chapter 13 trustee.
MEMORANDUM OPINION
A hearing was held in open court on August 7, 2000, on the motion of the United States of America for leave to file a late proof of claim on behalf of the Internal Revenue Service ("IRS"), or, in the alternative, for revocation of the order of confirmation, on the ground that it was not given notice of the case until after the bar date for claims had passed. The nited States was present by counsel. The debtor was not present but had sent a response to chambers by fax. The chapter 13 trustee was present in person. At the conclusion of the hearing, the court took the matter under advisement to review the applicable law. For the reasons stated, the court will deny the motion to file a late proof of claim or to revoke the order of confirmation but will, sua sponte, grant relief from the automatic stay to permit the IRS to collect its claim outside the chapter 13 process.
Background
Karen A. Blatter, who is a practicing attorney, filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code in this court on December 21, 1999. She had previously filed four prior bankruptcy petitions in this court on her own behalf. Three of these were chapter 13 cases, all of which were dismissed without completion of a plan. The remaining case was a chapter 7 case in which she received a discharge.
Based on the debtor's filing history, the chapter 13 trustee brought a motion to dismiss the present case as a bad faith filing. The court denied the motion but ruled that any dismissal of the case, whether voluntary or involuntary, within two years of the filing date would be with prejudice to any further filings for a period of 180 days.
On her schedules, the debtor listed a priority claim owed to the Internal Revenue Service in the amount of $2,200.00. For reasons that are unexplained, however, she did not include the Internal Revenue Service on the list of creditors that is required to be filed with the clerk. Fed.R.Bankr.P. 1007(a)(1); Local Bankr.R. 1007-1(I) (requiring list of creditors to be submitted in machine-readable form on computer diskette). That list is used by the clerk to mail notices to creditors and parties in interest. Accordingly, the IRS was not mailed a copy of the notice of commencement of case. Her initial repayment plan was denied confirmation. However, a modified plan dated March 28, 2000, was confirmed on July 11, 2000, over the objection of the chapter 13 trustee. That plan requires the debtor to pay the chapter 13 trustee $229.41 per month for 36 months and projects a 10% dividend on unsecured claims. Neither the initial plan nor the modified plan was served on the Internal Revenue Service. The modified plan did, however, include provision for the payment of $2,200.00 to the Internal Revenue Service on account of its priority claim. It was not until the United States Attorney received a copy of the memorandum opinion and order confirming the plan that the Internal Revenue Service learned that the case had been filed. By that time, the June 19, 2000, extended bar date for governmental units to file proofs of claim had already run. On July 20, 2000, the United States filed the present motion seeking leave to file a proof of claim in the total amount of $5,418.81, of which $3,753.92 is asserted as a priority debt and $1,664.89 as a general unsecured debt. It is difficult to make complete sense of the debtor's response to the motion; however, she concedes that the plan does not pay the full amount of the IRS's claim and says that she intends to modify the plan to provide for the claim.
Discussion I.
Except in chapter 11 cases, where certain scheduled claims are deemed filed, a creditor desiring to receive distributions in a bankruptcy case is required to file a proof of claim. § 502(b)(9), Bankruptcy Code; Fed.R.Bankr.P. 3002(a). The deadline for filing claims in a chapter 13 case is 90 days after the first date set for the meeting of creditors, except for a "governmental unit," which has until 180 days after the filing of the petition. Fed.R.Bankr.P. 3002(c)(1); § 502(b)(9), Bankruptcy Code. In the present case, the petition was filed on December 21, 1999, and the claims bar date for governmental units was therefore June 19, 2000. While the court is empowered to extend the time for the United States, a state, or a subdivision thereof to file a proof of claim, the motion for extension must be filed "before the expiration of such period." Fed.R.Bankr.P. 3002(c)(1) (emphasis added). The court is not permitted to extend that time, except as specifically provided in Rule 3002(c).
Fed.R.Bankr.P. 9006(b)(3). Chapter 13, unlike chapter 7 and chapter 11, contains no general provision for payment or allowance of late-filed claims. The only creditors entitled under Rule 3002(c) to an extension after the bar date has run are "an infant or incompetent person or the representative of either," a creditor whose claim arises from having to disgorge a preference, and a creditor whose claim arises from the rejection of an executory contract. Fed.R.Bankr.P. 3002(c)(2), (c)(3), and (c)(4).
In chapter 7, a priority tax claim is entitled to payment whether or not timely filed. § 726(a)(1); Cooper v. IRS, 167 F.3d 857 (4th Cir. 1999). Additionally, a late claim, whether or not entitled to priority, may be paid where the creditor did not have notice or actual knowledge of the case in time to file a timely proof of claim and the claim is filed in time to permit such payment. § 726(a)(2)(c). Finally, even where the creditor had notice, a late-filed claim may be paid to the extent that funds remain after all timely-filed claims have been paid in full. § 726(a)(3). In chapter 11, a late-filed claim may be allowed where the failure to file was the result of excusable neglect. Fed.R.Bankr.P. 3003(c)(3) and 9006(b)(1); Pioneer Inv. Services Co. v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993); In re Quartercall Communications, Inc., 1996 WL 910910 (Bankr.E.D.Va. 1996) (applying Pioneer).
It is unquestionably true that disallowance of an otherwise valid claim is harsh to the creditor, particularly where, as here, the debtor has made provision for at least some of the claim in her plan. At the same time, Rule 9006(b) is very clear that the claims bar date in a chapter 13 case cannot be extended after the fact even where the creditor is not at fault. Such a rule promotes expedition and certainty in the administration of chapter 13 cases, as well as fairness to those creditors who file timely proofs of claim. In any event, since none of the specific exceptions in Rule 3002(c) applies, the court simply has no authority to grant the requested relief. The court is aware that some bankruptcy courts have applied various equitable theories to permit the late filing of claims in chapter 13 cases by creditors who did not receive proper notice. See, e.g., In re Anderson, 159 B.R. 830, 835 (Bankr.N.D.Ill. 1993); In re Vaughn, 151 B.R. 87 (Bankr.W.D.Tex. 1993); In re Smith, 217 B.R. 567 (Bankr.E.D.Ark. 1998). However, the weight of authority, particularly at the court of appeals level, is to the contrary. Matter of Greenig, 152 F.3d 631, 634-35 (7th Cir. 1998) (acknowledging harshness of result, but holding that failure to file claim within time period specified by rules is "absolute bar" unless one of the specific exceptions in Rule 3302(c) applies; bankruptcy court "cannot use its equitable power to circumvent the law"); In re Gardenhire, 209 F.3d 1145 (9th Cir. 2000). Accordingly, the court concludes that it is without power to extend the time for the IRS to file a proof of claim.
As noted, the situation is different in chapter 11, which allows claims to be filed after the bar date if the failure to file timely was the result of excuseable neglect. In Pioneer, the Supreme Court explained that the determination of whether neglect is excusable is an equitable one, taking into account all relevant circumstances. 507 U.S. at 395, 113 S.Ct. at 1498. These include the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith. Id. Certainly, where the creditor has not been given notice of the bankruptcy filing no fault can be attributed to the creditor. But even if an excuseable neglect analysis could be applied in the chapter 13 context, the issue of prejudice would remain. In this District, chapter 13 plans are "pot" plans, meaning that unsecured claims are not guaranteed a fixed percentage of repayment but rather share pro rata in whatever funds remain after secured and priority claims are paid. See In re Witkowski, 16 F.3d 739, 741 n. 11 (7th Cir. 1994). The plan in this case projected a 10% dividend on unsecured claims, but, as noted in the memorandum opinion and order confirming the plan, the likely distribution, assuming the IRS claim is allowed, would be closer to 3 or 4 cents on the dollar. That amount will be increased to approximately 5 cents on the dollar in the absence of the IRS claim.
II.
As alternate relief, the IRS requests that this court vacate the order of confirmation under Fed.R.Bankr.P. 9024. As the IRS correctly notes, this court held in In re Joseph, No. 97-16155-SSM, 1998 WL 939694 (Bankr.E.D.Va., Nov. 4, 1998) that although Fed.R.Bankr.P. 9024 and § 1330, Bankruptcy Code, plainly require that any challenge to a chapter 13 confirmation order be brought within 180 days of the entry of the order, Rule 9024 may be used in appropriate circumstances to grant relief from a confirmation order on grounds other than fraud in the procurement of the confirmation order, including the failure of a plan to provide for a timely filed proof of claim. Id. at *6. In the present case, however, merely setting aside the confirmation order would not provide any meaningful relief. Even if the debtor, as she states in her response to the motion, were to propose a new plan, the filing of such a plan would not recommence the time for filing claims or resurrect a time-barred claim. Only if the court, after vacating the order of confirmation, were to dismiss the case under § 1307(c), Bankruptcy Code, would there be effective relief, since a refiling by the debtor would trigger a new period for filing claims.
Rule 9024 provides in relevant part as follows: Rule 60 F.R. Civ. P. applies in cases under the Code except that (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.
Section 1330, Bankruptcy Code, provides in relevant part as follows: (a) On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation under section 1325 of this title, and after notice and a hearing, the court may revoke such order if such order was procured by fraud.
The court is not convinced, however, that dismissal of the case is an appropriate remedy. While the debtor's failure to provide the IRS with notice of the bankruptcy filing was plainly negligent, there is no suggestion that it was deliberate or that the debtor filed the petition with any design to defeat collection of the government's tax claim. If denial of the motion effectively precluded the IRS from ever collecting the claim, that would be one thing; but, as will be discussed, a remedy exists short of dismissal that will adequately protect the government's interest in collecting the tax claim in question.
III. A.
In this connection, the court notes that a creditor who has not been given proper notice of a chapter 13 case in time to file a proof of claim is not left without a remedy. Most courts hold that the claim of such a creditor has not been "provided for" by the plan and is therefore excluded from discharge. See In re Kristiniak, 208 B.R. 132, 134 (Bankr.E.D.Pa. 1997) (collecting cases).
Although such creditors are not entitled to share in the distribution from the estate, they may enforce their claims after the conclusion of the case or, if they obtain relief from the automatic stay, even while the case is pending. Id. The present case is certainly one in which relief from stay would seem appropriate, even though permitting the IRS to enforce its claim outside the chapter 13 case would arguably increase the risk that the debtor would be unable to comply with the plan. In her response to the motion, however, the debtor represents that she has "recently been offered and will accept a salaried position which will raise her income." Thus, it would appear that she could reach an appropriate payment arrangement with the IRS while continuing to make payments of $229.41 per month to the trustee as required by the terms of the confirmed plan. Even if she proves unable to do so, the prejudice to other creditors from the possible failure of the plan, and dismissal of the case, is not very great (given the relatively insignificant dividend being paid on unsecured claims) and is outweighed by the prejudice to the IRS from not being allowed to collect its claim. Additionally, the debtor — who as a practicing bankruptcy attorney should surely have appreciated the necessity of ensuring that the list of creditors was complete and accurate — has shown no excuse for not providing a complete and proper mailing address for the IRS on her list of creditors.
Additionally, in the memorandum opinion and order confirming the debtor's plan, the court pointed out that, although the time had run for the IRS itself to file a timely proof of claim, the time had not yet run for the debtor to file a claim on its behalf. In re Blatter, No. 99-16228 (Bankr.E.D.Va., Jul. 10, 2000) at 3 n. 4; Fed.R.Bankr.P. 3004. The debtor, had she taken the hint and done so, could have avoided the very situation that is now presented.
B.
The IRS argues, to be sure, that relief from the automatic stay does not necessarily provide it with as good a remedy as having its claim allowed. The IRS would most of all like to have its claim paid, and it argues that chapter 13 is a vehicle well-suited for that purpose. The IRS also expresses a concern that, if late tax claims are not allowed in cases like this, the claim may never be paid at all, because the priority "window" will run during the current case, leaving the claim subject to discharge in a subsequent case. Although priority tax claims must be paid in full in chapter 13, nonpriority tax claims-even those that would be nondischargeable in chapter 7 — can be discharged in chapter 13. In this connection, income taxes are entitled to priority status if the last date for filing a return was within three years of the filing of the bankruptcy petition or if the tax was assessed within 240 days of the filing of the bankruptcy petition. § 507(a)(8), Bankruptcy Code. Thus, a debtor who — whether deliberately or negligently — fails to list a taxing authority as a creditor could simply wait out the three-year period and then discharge the taxes in a subsequent chapter 13. However, most courts, including those in this district, have held that the three-year priority period is tolled during any bankruptcy case in which the automatic stay prevents enforcement of the taxing authority's claim. In re Darden, 202 B.R. 715 (Bankr.E.D.Va. 1996). Thus, the IRS's fear that its claim, if not allowed and paid in the current filing, will lose its priority status in the event of a future filing is not well founded.
IV.
For the reasons stated, a separate order will be entered denying the motion to file a late claim or to vacate the order of confirmation but sua sponte granting relief from the automatic stay to permit the tax claim to be collected from the debtor outside the chapter 13 plan.