BANKRUPTCY CORNER
BANKRUPTCY CORNER
The Validity of a Claim is Determined as of the Petition Date
JASON S . RIGOLI
Although not binding , Bankruptcy Judge Craig T . Goldblatt ’ s opinion in In re Promise Healthcare Group , LLC , Case No . 18-12491 ( CTG ), 2023 Bankr . LEXIS 1085 , 2023 WL 3026715 ( Bankr . D . Del ., Apr . 20 , 2023 ), is very interesting and timely in light of Florida ’ s recent suite of statutory amendments , which included shortening the statute of limitations for all negligence claims to 2 years .
In Promise Choice , the debtor , a hospital filed a voluntary chapter 11 bankruptcy . Promise Healthcare , 2023 Bankr . LEXIS 1085 at * 5 . The debtor filed a chapter 11 liquidating plan , which was confirmed and established a liquidating trust administered by a liquidating trustee . Id . Meanwhile , a creditor timely filed an unliquidated $ 10 million proof of claim for medical negligence . Id . at * 6 . The underlying statute of limitations on the creditor ’ s negligence claim , which happened to be under Florida law , was 2 years and expired about 7 months postpetition . Id . at * 5-6 . Notwithstanding , if the limitations period has not expired as of the petition date , 11 U . S . C . § 108 ( c )( 2 ) extends the limitations period for a period of “ 30-days after notice of termination or expiration of the automatic stay .” Id . at * 8 . The limitations period expired 30-days after the plan became effective , at which point the stay was terminated or expired .
The claims objection in the case occurred after confirmation of the chapter 11 plan . The liquidating trustee objected to the proof of claim because the creditor did not seek a modification of the stay to file a state court lawsuit prior to the expiration of the limitations period as extended by 11 U . S . C . § 108 ( c )( 2 ).
In bankruptcy , the claims allowance process is governed by 11 U . S . C . § 502 . “ Section 502 is laid out in the negative ; a claim is ‘ deemed allowed ’ under § 502 ( a ) unless an objection is made . If the claim is objected to , it is allowed unless the claim falls under one of nine enumerated exceptions set forth in § 502 ( b )( 1 ) - ( 9 ) — the first of which being that the " claim is unenforceable against the debtor ... under ... applicable law .’” Id . at * 12-13 ( quoting 11 U . S . C . § 502 ( b )). “ And importantly , § 502 ( b )' s preamble provides that a court " after notice and a hearing , shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition . . ." Id . at * 13 ( quoting 11 U . S . C . § 502 ( b ) ( emphasis added in original )). Section 502 ( b )( 1 ) specifically provides that claims should be allowed , unless unenforceable against the debtor or its property under non-bankruptcy law , “ for a reason other than because such claim is contingent or unmatured ”. As with other provisions of the Bankruptcy Code , § 502 ( b ) is a snapshot and the determination of whether a claim is valid against the debtor is determined as of the petition date . See id . * 13-14 .
Judge Goldblatt also reasoned that the liquidating trustee ’ s position was inconsistent with long standing Bankruptcy policy : “ The reason that § 502 is ‘ an essential part of the bankruptcy process ’ is that it provides for a centralized mechanism by which bankruptcy courts resolve disputed and unliquidated claims that may be asserted against the bankruptcy estate .” Id . at * 14 ( quoting 4 Collier on Bankruptcy ¶ 502.01 ). “ To do so , the Code equalizes competing legal rights — all potential creditors will have their right to payment reduced to a " claim " as defined in [ 11 U . S . C .] § 101 ( 5 ), and all claims will be determined as of the filing of the bankruptcy petition .” Id .
Conclusion
The claims allowance process is governed by § 502 and the validity of any claim filed is determined as of the petition date . A creditor with a timely filed claim that was unliquidated as of the petition date does not have to go through the additional steps of obtaining a modification of the automatic stay to file suit in state or federal court , as appropriate , prior to the expiration of the applicable limitations period of the underlying claim , to liquidate and preserve the creditor ’ s claim in the bankruptcy case . The unliquidated claim can be resolved in the bankruptcy claims process , as is contemplated by the Bankruptcy Code and long-standing policy and practice of a centralized forum for adjudication of all claims .
This article was submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
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