6 Distribution Of The Estate

Transcription

1 6 Distribution Of The Estate 6.01 WHAT IS A CLAIM? Whether something is a claim has two important consequences in a bankruptcy case. First, distribution of the assets of the estate is made only to holders of claims. (Holders of ownership interests in the debtor may also, under certain circumstances, receive distribution in that capacity, rather than as creditors.) Second, the debtor receives a discharge only from a debt, which the Bankruptcy Code defines as liability on a claim. 101(12). Congress policy in the Code is to allow a bankruptcy case to settle all of a debtor s legal relationships, both in terms of permitting creditors to participate in the case and discharging all of a debtor s claims. To this end, the Code defines claim very broadly. Initially, a claim is any right to payment. The definition is not limited by whether the right to payment is liquidated or unliquidated, fixed (noncontingent) or contingent, admitted or disputed, matured or unmatured, secured or unsecured. 101(5). Thus, a note or other obligation that is not yet payable, damages that will arise in the future in tort or for breach of contract as well as past damages, and past or future damages that are yet to be determined are all included within the definition.the bankruptcy case can and does deal with all such claims. Their holders are entitled to share in the distribution of the estate, and the debtor s discharge applies to such claims. The Supreme Court has recognized that Congress intended the broadest possible definition of claim. Department of Public Welfare v. Davenport, 495 U.S. 552 (1990). In that case, the Court held that a state court criminal judgment ordering restitution as a condition of the debtor s probation was a claim. In Ohio v. Kovacs, 469 U.S. 274 (1985), which involved a mandatory injunction requiring the debtor to clean up certain pollution he had caused, the Court s view was that the state in effect was seeking to make the debtor pay money, since that was the only way he could comply. It followed that the state was asserting a right to payment, a claim, so that 305

2 306 Fundamentals of Bankruptcy Law

3 6.01 Distribution Of The Estate 307 the bankruptcy discharge would bar further efforts to force compliance with the injunction. The point at which a potential right to payment or a particular legal relationship becomes a claim, that is, a right to payment, is an important and sometimes difficult question, because the Code addresses only claims that exist as of specified dates. Another way of asking the same question is, When does a claim arise? The answer determines whether the creditor may participate in the case and whether the debtor is discharged from the asserted right. Although the concept of a right to payment suggests that the claim arises when all conditions precedent to the establishment of the right have occurred, the Code s inclusion of contingent claims within the definition of claims shows otherwise, because a contingent claim by definition involves a condition precedent to liability that has not yet occurred. Some cases are well established. A claim based on a contract arises when the contract becomes binding, even if there is no breach at the time of the bankruptcy petition.a tort claim ordinarily arises when all the elements of the tort, including an injury, have occurred, although there are exceptions. In some instances, the elements of a tort have occurred that is, in the sense that the creditor has a present right to payment against the debtor but the creditor is not yet aware of his injury. For example, the debtor may have embezzled money but his employer has not yet discovered the loss. In other instances, all of the debtor s conduct necessary for liability may have occurred but some external event necessary for liability has yet to happen. For example, a debtor manufacturer has sold a product with a defect that may in the future cause an injury, or perhaps an asbestos tort victim has an irreversible disease but no symptoms have yet become manifest. The case law has not yet resolved in any uniform way the extent to which these potential rights to payment become claims as of the time of bankruptcy. Compare In re M. Frenville Co., 744 F.2d 332 (3d Cir. 1984) (accountants statutory indemnity and contribution claims against debtor based on prepetition conduct did not arise until accountants were sued after bankruptcy), with In re A.H. Robins Co., 839 F.2d 198 (4th Cir. 1988) (claim based on Dalkon Shield personal injury arose when device was inserted prepetition rather than when symptoms occurred postpetition); further compare In re Jensen, 995 F.2d 925 (9th Cir. 1993) (claim of environmental agency arises when it fairly has reason to believe that debtor is responsible for violation of environmental protection law) with In re Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991) (claim arises when there is a release or threatened release of hazardous waste even though it is undiscovered). See also Epstein v. Official Comm. of Unsecured Creditors, 58 F.3d 1573 (11th Cir. 1995) (product liability claim exists when defective product has been put into commerce and events have occurred that create a

4 308 Fundamentals of Bankruptcy Law 11 U.S.C Definitions In this title the following definitions shall apply: (5) The term claim means (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. 11 U.S.C Rules of construction In this title (2) claim against the debtor includes claim against property of the debtor; 11 U.S.C Filing of proofs of claims or interests (a) A creditor or an indenture trustee may file a proof of claim.an equity security holder may file a proof of interest. (b) If a creditor does not timely file a proof of such creditor s claim, an entity that is liable to such creditor with the debtor, or that has secured such creditor, may file a proof of such claim. (c) If a creditor does not timely file a proof of such creditor s claim, the debtor or the trustee may file a proof of such claim. (d) A claim of a kind specified in section 502(e)(2), 502(f), 502(g), 502(h) or 502(i) of this title may be filed under subsection (a), (b), or (c) of this section the same as if such claim were a claim against the debtor and had arisen before the date of the filing of the petition. (e) A claim arising from the liability of a debtor for fuel use tax assessed consistent with the requirements of section of title 49 may be filed by the base jurisdiction designated pursuant to the International Fuel Tax Agreement (as defined in section of title 49) and, if so filed, shall be allowed as a single claim. 11 U.S.C Claims and interests (a) A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears in the schedules filed under section 521(1) or 1106(a)(2) of this title, except a claim or interest that is scheduled as disputed, contingent, or unliquidated. 11 U.S.C Allowance of claims or interests (b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the 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, and shall allow such claim in such amount, except to the extent that (9) proof of such claim is not timely filed, except to the extent tardily filed as permitted under paragraph (1), (2), or (3) of section 726(a) of this title or under the Federal Rules of Bankruptcy Procedure, except that a claim of a governmental unit shall be timely filed if it is filed before 180 days after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide, and except that

5 6.02 Distribution Of The Estate 309 relationship between the claimant and the product, such as contact, exposure, impact, or privity). The definition of claim further includes any right to an equitable remedy for breach of performance if that breach also gives rise to a right to payment. 101(5)(B). For example, a right against the debtor for specific performance of a contract to sell real estate is a claim, since money damages, at least in some amount, are an alternative remedy to specific performance. Probably the definition means that if the right against the debtor can be quantified as a dollar amount, or is in effect a monetary right against the debtor, the right is a claim for Code purposes. In this view, most of the rights one can enforce against the debtor are claims. The Code defines another phrase, claim against the debtor, as including a claim against property of the debtor. 102(2). Thus, a creditor holding a nonrecourse note secured by a mortgage on the debtor s property or a secured creditor who, under applicable law, is prohibited from obtaining an in personam deficiency judgment, nevertheless has a claim against the debtor within the meaning of the Code. See Johnson v. Home State Bank, 501 U.S. 78 (1991) (mortgage lien on debtor s property is a claim or debt even though debtor s personal liability on the obligation was previously discharged in bankruptcy). The extent to which the holder of such a claim may share in the distribution of the estate, beyond being able to look to the collateral, depends on the allowability of the claim, 502(b)(1), 1111(b), a matter discussed later ALLOWANCE OF CLAIMS Having a claim does not of itself entitle a creditor to share in the distribution of the assets of the bankruptcy estate; the claim also must be allowed. Except for certain secured claims held by creditors who wish to look only to the value of their collateral for payment, discussed more fully later, every claim must go through the allowance process before its holder is entitled to a distribution on account of the claim. The first step in the allowance process is filing a proof of claim. Bankruptcy Rules 3002(a), 3003(c). In Chapter 11 cases, certain claims listed on the debtor s schedules are deemed filed, a status that meets the filing requirement. 1111(a); Bankruptcy Rule 3003(b)(1). Official Form No. 10, promulgated by the Judicial Conference of the United States under Bankruptcy Rule 9009, which can be found in the appendix to Title 11, prescribes the contents of a proof of claim. The deadline for filing claims (when there is no deemed filing) is generally governed by the Bankruptcy Rules. In Chapters 7, 12, and 13, the claims fil-