A recent Bankruptcy Court decision sanctioned a creditor that filed an inaccurate proof of claim by awarding attorney’s fees to the debtor. In re Simmons, No. 22-680 (Bankr. D. S.C. Aug. 31, 2022).
Bankruptcy Procedure for Proof of Claim
Rule 3001(c)(2)(D)(i)-(ii) of the Federal Rules of Bankruptcy Procedure states that if a creditor fails to provide the information required by Rule 3001(c), or proof of claim, the court may, after notice and hearing, take either or both of the following actions:
(i) preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or
(ii) award other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.
What Happens with an Inaccurate Proof of Claim Filing?
The creditor filed an incorrect proof of claim because the creditor failed to properly apply payments previously made by the debtor. The Court found that the creditor was not substantially justified in miscalculating its proof of claim and for failing to provide the debtor with an explanation of the application of the disputed payments until the date of the hearing.
Moreover, the Court held that the creditor’s inaccurate Form 410A caused harm to the debtor because the debtor was forced to file an objection to the bankruptcy creditor’s claim; confirmation of the debtor’s plan was delayed due to the objection; and the debtor incurred additional attorney’s fees to resolve the dispute. While the imposition of sanctions under Rule 3001(c)(2)(D) is entirely within the discretion of the court, the Court awarded attorney’s fees to the debtor as a sanction for the creditor’s error.