Curtain Closes on "Documentation" Objections in South Florida

Southern Florida was historically one of the most active jurisdictions in claim litigation. Debtors, apparently betting on a creditor's unwillingness to spend money to defend a claim where repayment was by no means guaranteed, employed this strategy to disallow thousands of claims, and resultantly millions of dollars, through this mechanism.

Judicial intervention was rare, as claims were disallowed "by default" if a creditor did not respond to the objection. If a creditor did respond, the debtor's objection was typically withdrawn prior to a hearing. Recently, Becket & Lee scored a major victory in this battle when the Chief Bankruptcy Judge for the Southern District of Florida ruled that claim objections based solely on "insufficient documentation" would no longer be granted.

In conformance with what has become the generally accepted majority view, the Court overruled objections to claims, refusing to disallow them for a putative lack of sufficient supporting documentation. The court repeated the position taken by "the vast majority of courts", that a failure to comply fully with the documentation requirements of Fed. R. Bankr. P. 3001(c) is no basis for disallowing, or objecting to, a claim. Rather, only the Bankruptcy Code, particularly 11 U.S.C. section 502(b), provides the grounds for disallowing a claim, and does not include insufficiency of documentation among them.

As a general matter, a proof of claim may be sufficiently supported by an account summary and need not include the account agreement or evidence of each transaction. The court went on to specify its tests for sufficient documentation.

First, a claim that is scheduled by the debtor, undisputed, in an amount equal to or greater than claimed requires little, if any, documentation. To the debtor who may schedule his debts as disputed in an attempt to force an unwarranted evidentiary burden on the creditor, the court warned that, "the term undisputed is not meant to solely relate to how the debt is scheduled, but rather to the lack of any objection to the merits of the claim".

The court overruled with prejudice objections to claims that corresponded to scheduled debts depicting identical account numbers and amounts that matched or exceeded those claimed.

Second, a claim that exceeds the debtor's scheduled amount need only be supported to the degree it exceeds the amount scheduled.

Third, a claim for an unscheduled debt may, when challenged by a debtor's objection, require more extensive documentation such as account statements. Nevertheless, such an objection will not stand if based solely on a lack of documentation. The court made its sentiment very clear:

[T]his Court will not tolerate attempts to obtain orders disallowing these claims if the only basis for the objection is lack of documentation.

Its patience was worn thin by:

. . . debtors taking advantage of the cost of responding to claims objections and obtaining orders striking claims which the debtor has acknowledged owing in whole or in part.

Since this opinion was published, other Judges in Southern Florida have adopted its reasoning and the volume of objections from this area has, temporarily at least, slowed to a trickle.

In re Moreno, No. 03-18692-BKC-RAM (Bankr. S.D. Fla. Apr. 13, 2006).