Lending money to a friend, you lose both the friend and the money | Nelson Mullins Riley & Scarborough LLP

In the case of About Ricky L. Moore (19-01228), U.S. Bankruptcy Court for the Northern District of Iowa Taught an Important Lesson in the Context of Chapter 12 Bankruptcy Cases[1]: Do not rely on repeated assurances of payment from a friend debtor instead of filing your proof of bankruptcy.

In Moore, Sexton Oil Co. supplied the Debtor with agricultural fuel before the Debtor went bankrupt. The owner of Sexton Oil had a personal relationship with the debtor, knew that the debtor had filed for bankruptcy, and had ongoing discussions with the debtor during bankruptcy regarding the overdue account. The debtor repeatedly assured Sexton Oil that the account would be paid. However, the debtor did not pay Sexton Oil as promised, and Sexton Oil then filed its proof of claim almost a year and a half late. The debtor objected to Sexton Oil’s claim as being out of time.

The bankruptcy court has recognized that in some cases late-filed claims may be accepted. Typically, “excusable negligence” will allow a creditor to assert late-filed claims in Chapter 11 cases. Excusable negligence is a very factual investigation that focuses, among other things, on the danger of harm to the debtor. , the duration of the delay and its potential impact on legal proceedings, the reason for the delay (including whether it was within the reasonable control of the obligee) and whether the obligee acted in good faith. However, the bankruptcy court ruled that the doctrine of excusable negligence does not apply in a Chapter 12 case.[2].

Creditors may also argue that, even though they have not filed formal proof of claim, they are deemed to have submitted “informal proof of claim” due to their significant involvement in the bankruptcy and bankruptcy case. their intention to hold the debtor responsible for their claim. . However, the bankruptcy court ruled that this doctrine could not help Sexton Oil either, as Sexton Oil had not been involved in the bankruptcy case at all until she filed her petition to do so. right to its late complaint.

While the bankruptcy court may have felt sympathy for Sexton Oil, particularly as the court encouraged the parties to “stay behind their verbal assurances,” the court said that in this particular case, it did not. simply did not have the discretion to allow Sexton Oil’s late proof of claim. . Therefore, the bankruptcy court rejected the late filed claim by Sexton Oil and dismissed the claim against the debtor.

While Moore is a Chapter 12 case, the lesson for creditors in this caveat is clear: go ahead and file your proof of claim. Not only is it easier to negotiate with the debtor after your claim is filed, the process of attempting to assert a late claim is costly and leads to uncertain results.


[1] The cases in Chapter 12 are designed for “family farmers” or “family fishermen”.

[2] The doctrine of excusable negligence is rooted in Bankruptcy Rule 9006 (b) which allows the court to extend certain periods of time when failure to act was the result of excusable negligence. However, bankruptcy rule 9006 (b) (3) states that “the court may extend the time for taking action under the rule[ ] . . . 3002 (c). . . only to the extent and under the conditions set out in [that] to reign[ ]. “Rule 3002 (c) governs Chapter 12 cases, and none of the conditions of Rule 3002 (c) bankruptcy would have applied to Sexton Oil.

Troy M. Hoffman