Circuit Court Denies Claim For Lack of Supporting Documentation

The 10th Circuit has ruled that a trustee's objection to an assigned proof of claim should be sustained based on lack of supporting documentation even though the debtor scheduled a similar claim. In re Kirkland, No. 08-2017 (10th Cir. 7/14/09). The opinion can be found here.

In Kirkland, the debtor scheduled a debt in the amount of $5,004 for a credit card account ending in 2787. NextBank, N.A./B-Line, LLC filed a proof of claim in the amount of $5,328.19 for a credit card account ending in 2787, but did not include any supporting documentation. The chapter 7 trustee objected to the claim. Neither the trustee nor the creditor offered any evidence at the hearing, although the creditor asked the court to take judicial notice of the debtor's schedules. The Bankruptcy Court sustained the objection, finding that the creditor had failed to prove up its claim. In re Kirkland, 361 B.R. 199 (Bankr. D.N.M. 2007). The Bankruptcy Appellate Panel reversed. In re Kirkland, 379 B.R. 341(10th Cir. BAP 2007).

The 10th Circuit held that the Bankruptcy Court was correct in denying the claim. It stated:

The bankruptcy court appropriately determined that because B-Line bore the burden of proof for its claim and failed to meet its burden, its claim was disallowed. See In re Kirkland, 361 F.3d at 205. The plain language of the bankruptcy Code and its associated procedural rules support the court’s ruling. The Bankruptcy Code provides that “[a] creditor . . . may file a proof of claim.” 11 U.S.C. § 501(a). Because the code does not define “proof of claim,” we look to the Federal Rules of Bankruptcy Procedure. “A proof of claim is a written statement setting forth a creditor’s claim. . . . [It] shall conform substantially to the appropriate Official Form.” Fed. R. Bankr. P. 3001(a). The relevant form is Official Form 10, which requires a claimant to “[a]ttach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, judgments, mortgages, and security agreements.” Fed. R. Bankr. P. Official Form 10. Form 10 also instructs a claimant that “[i]f the documents are not available, please explain.” Id. When a proof of claim is executed and filed in accordance with the provisions of Rule 3001 (including Official Form 10), it “constitutes prima facie evidence of the validity and amount of the claim.” Fed. R. Bankr. P. 3001(f).

B-Line has failed to produce a single document to support its proof of claim. B-Line has also failed to explain its failure to provide supporting documentation. Although the bankruptcy court took judicial notice of the Debtor’s appended schedules of unsecured creditors, it correctly determined that the schedules were of no evidentiary value against the Trustee. Therefore, B-Line has failed to present “prima facie evidence of the validity and amount of the claim.” Id. In response to the Trustee’s objection, the bankruptcy court held an evidentiary hearing. Even then, B-Line produced no evidence in support of its claim and no explanation for its failure to do so. On this record, we conclude that the bankruptcy court appropriately disallowed B-Line’s claim. Had the bankruptcy court allowed B-Line’s claim despite B-Line’s failure to provide either supporting evidence or an explanation for its failure to provide supporting evidence, the burden would have improperly rested with the Trustee to disprove an unsubstantiated claim. (citation omitted).

Opinion, at 5-6.

The Court of Appeals' reasoning can be summarized as follows:

1. A properly filed proof of claim is entitled to prima facie validity.

2. A claim without supporting documentation is not a properly filed proof of claim and is not entitled to prima facie validity.

3. The trustee is not estopped by the debtor's schedules.

4. If a claim is not entitled to prima facie validity and is not supported by competent evidence, the claim must be denied without the necessity for the objecting party to offer any proof.

This is an issue which has been percolating through the lower courts for some time now. See On Gunslingers, Presumptions and Burdens of Proof and Assigned Credit Card Debt: A Problem of Paper, Electronic Images and Faith. However, this appears to be the first Circuit Court opinion to weigh in on the effect fo failure to attach documentation to a credit card claim. However, the ruling may be of primary benefit to trustees, since the trustee was not estopped by the debtor's schedules. If the objection had been brought by a debtor, the result might have been different.