Bankruptcy Judge for Southern District of Texas Interprets Bankruptcy Rule 3001

A bankruptcy judge in the Southern District of Texas recently issued an opinion interpreting the federal rule of bankruptcy procedure 3001 which became effective December 1, 2011. The amended bankruptcy rule provided for possible attorney’s fees (“fee-shifting”) against a claimant that filed a proof of claim without attaching appropriate documents. Prior to December 1, 2011, there was no such fee-shifting provision in bankruptcy rule 3001. The question before the court was whether the fee-shifting provision applied to claims filed before December 1, 2011.

The bankruptcy court ultimately held that the fee-shifting provision only applies to claims filed after December 1, 2011 irrespective of when the bankruptcy case was filed. In the briefing of this issue, Weltman, Weinberg & Reis Co., LPA (Weltman) argued that the fee-shifting provision should only be applied to proof of claims filed after the effective date of the rule, December 1, 2011. Weltman argued that there were other enforcement mechanisms in the bankruptcy rules prior to December 1, 2011, that governed claims that were not filed pursuant to the bankruptcy rule. Specifically, the bankruptcy rules provided that notice must be given to the claimant to allow them to correct any errors, prior to any fee-shifting being awarded. The bankruptcy court agreed with this argument and held that no fee-shifting would be proper for claims filed before the effective date of the rule.

The bankruptcy court indicated that fee-shifting would not be appropriate unless fees were incurred to obtain the necessary information as required by the rule. Fees would only be awarded if a debtor or trustee is required to spend money to obtain the required information provided in the rule. Where a debtor has independent information sufficient to support a claim objection, the bankruptcy court stated that it would be difficult to see what legal fees were caused by the creditor’s failure to include the information. In such an instance, the court would not approve the fees.

As required by the rule, both prior to December 1, 2011 and thereafter, a creditor should include supporting documents to a proof of claim such as promissory notes, purchase orders, invoices, itemized statement of running accounts, contracts, judgments, mortgages and security agreements. If these supporting documents are not attached, a creditor may be subject to the fee-shifting provision of bankruptcy rule 3001.