Banco Popular De Puerto Rico v. Torres (In re Torres), No. PR 10-036, 2011 Bankr. LEXIS 130 (B.A.P. 1st Cir. Jan. 19, 2011)
In an unpublished decision, the United States Bankruptcy Appellate Panel for the First Circuit vacated an order by the Bankruptcy Court sustaining a debtor’s objection to a secured creditor’s proof of claim. The debtor claimed that because she was current with her mortgage payments to the secured creditor at the time of filing, the court should disallow the creditor’s claim for late fees and legal fees. The BAP held that the debtor’s objection was too vague to overcome the prima facie evidence of the claim’s validity and amount established by the creditor’s written statement, which substantially conformed to an Official Form.
Under Section 502(a) of the Bankruptcy Code, when a creditor submits a proof of claim, the court must allow the claim unless a party in interest objects. If a party in interest objects, the court must nevertheless allow the claim unless an exception listed in Section 502(b) of the Bankruptcy Code applies. Courts are split as to whether the Section 502(b) exceptions constitute an exhaustive list. Under Fed. R. Bankr. P. 3001, a proof of claim supported by a written statement that substantially conforms to the correct Official Form is considered “prima facie evidence of the validity and amount of the claim.” A court must analyze a proof of claim on a case-by-case basis, evaluating the detail provided by the claimant, the content of the written statement, and the objector’s identity. Official Form 10, the proof of claim form, instructs a claimant to attach certain supporting documents and to explain any absence of these supporting documents. If the claim includes any interest, the claimant must also attach an itemized statement of all interest charges. The BAP held that the creditor’s proof of claim was prima facie valid because it substantially conformed to Official Form 10 and contained the mortgage note evidencing the creditor’s secured claim.
If the debtor offers substantial evidence rebutting the proof of claim, the creditor then has the burden to prove its claim by a preponderance of the evidence. To sustain an objection to a proof of claim, the court must find that a Section 502(b) exception applies, or that the creditor’s written statement or supporting documentation is insufficient. The BAP held that the debtor’s objection lacked substantial evidence and was also too ambiguous and vague. In arguing that the court should disallow the claim for late fees and legal fees, the debtor failed to assert that she did not actually owe late fees, but merely stated that her payments were current at the petition date. The only charge to which the debtor specifically objected was to legal fees related to the claim preparation. However, the creditor’s statement indicated that all charges were pre-petition. The BAP held that a lack of arrears in mortgage payments by a debtor does not provide grounds for a court to disallow a claim by a creditor for fees related to the mortgage. The BAP also noted that when a creditor submits a claim after the court confirmation of the debtor’s plan, but before the deadline to file a proof of claim, the charges in the claim are still deemed pre-petition.
The BAP also considered the standard of review to apply in the case at hand. The creditor’s response to the objection was untimely, coming more than thirty days after the debtor served the objection on the creditor. However, the Bankruptcy Court considered the creditor’s late response in its order sustaining the objection. An appellate court reviews an order by a bankruptcy court disallowing a claim due to procedural default under an abuse of discretion standard, but reviews an order based on a legal issue under a de novo standard. Because the Bankruptcy Court apparently considered the creditor’s response while interpreting and applying the Bankruptcy Code, the BAP reviewed the order de novo.