SUPPLEMENTAL NOTICES TO FILE PROOFS OF CLAIM

In re Jarvis, Case No. 06-52553 (Bankr. N.D. Ohio May 1, 2008) (J. Shea-Stonum). Debtor filed a no-asset case, however, after the trustee received life insurance policy and 401k plan funds in the amount of $23,000.00 resulting from the death of the debtor’s husband, the trustee filed a first notice of assets on April 30, 2007. On May 2, 2007, the Clerk’s office served upon all creditors a notice to file a proof of claim, giving them until July 20, 2007 within which to file a proof of claim. Five proofs of claim totaling $23,785.38 were filed by the bar date. Subsequently, in November 2007, a second installment of funds, over $28,000.00, was received by the trustee. When transmitting the funds to the trustee, the debtor’s counsel requested prompt administration of the estate, as the debtor had already lost her home, her car, and her husband, and she needed the money to pay pending bills. Debtor recognized that according to the claims previously filed, she would be receiving $19,000.00 of those funds. Instead, the trustee filed a second notice of assets on January 31, 2008, and the Clerk’s office mailed a second notice of need to file proofs of claim, allowing all creditors until March 3, 2008 to file claims. Four additional claims totaling approximately $11,000.00 were received.

Debtor objected to the trustee’s second notice of assets and request for notice to creditors, arguing that the set of claims filed in response to the trustee’s first notice of assets had not been promptly administered and that granting creditors an additional opportunity to file proofs of claim was detrimental to debtor. The trustee admitted that one of the reasons he filed the second notice of assets was to increase distributions to creditors and, thus, increase his trustee’s fee. This had been the regular practice of panel trustees in the Akron Court.

Recognizing that it was presented with a question of first impression, the Court determined that no statutory authority exists for the sending out of a second request to file proofs of claim after the bar date has passed. The Court stated that the creditors’ right to payment of dividends should be accomplished as promptly as practicable, and a trustee must close a bankruptcy estate as expeditiously as is possible. In the case at hand, the Court noted that the particular problem resulted from the fact that creditors who did timely file proofs of claim did not see the prompt administration of the case for their benefit, and the trustee had not put forth a compelling reason why the first body of claims could not have been administered promptly after receipt of the second installment of estate funds in November 2007. The Court rejected the trustee’s concern that a substantial sum of money might be returned to debtor as an appropriate ground for requesting the filing of additional proofs of claim. The Court did note that a different situation could have resulted if no proofs of claim had been filed by the bar date or if the trustee was continuing to collect estate funds. The Court reduced the trustee’s fee and calculated it based solely on the distributions made pursuant to the claims filed by the bar date, however, it did establish a procedure by which Akron panel trustees can, for cause, seek approval before filing a supplemental notice of need to file proofs of claim.

COMMENT: After this opinion, it is uncertain whether trustees can send letters on their own soliciting proofs of claim as opposed to having the clerk's office issue an additional notice. Judge Shea-Stonum might frown upon such an attempt. In the Canton Bankruptcy Court, however, the clerk's office has never issued supplemental notices but has always allowed trustees to solicit additional proofs of claim through their own efforts.

Aaron Ridenbaugh