Federal Rule of Bankruptcy Procedure 3003(c)(3) provides that “the [bankruptcy] court shall fix and for cause shown may extend the time within which proofs of claim or interest may be filed.” For various reasons, creditors sometimes miss the claims “bar date” and need to seek permission from the court to file a late filed claim or deem the late-filed claim allowed. In order to succeed, the creditor must convince the court that the late claim was the result of excusable neglect. In re Garden Ridge Corp., 348 B.R. 642, 645 (Bankr. D. Del. 2006). Excusable neglect is not defined within the Bankruptcy Code. Instead, “it is based on equity and depends on the particular circumstances and facts of the case.” Id., citing Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed. 2d 74 (1993).
Courts generally consider four factors in deciding whether a claimant has established excusable neglect. In re Garden Ridge Corp., 348 B.R. at 645, citing Hefta v. Official Comm. of Unsecured Creditors (In re American Classic Voyages Co.), 405 F.3 133 (3d Cir. 2005). These factors include (i) the danger of prejudice to the debtor; (ii) the length of delay and its impact on the judicial proceedings; (iii) the reason for the delay, including whether the delay was within the reasonable control of the movant; and, (iv) whether the creditor acted in good faith. Id. “All factors must be considered and balanced; no one factor trumps the others.” Id.
In Garden Ridge, the creditor who filed the late claim acknowledged to the court that it made a mistake in missing the deadline, but urged the court to weigh the “Pioneer factors” and not enforce the claims bar date. Turning first to the issue of prejudice, the court noted that the claim was filed one week after the claims bar date. The court can consider several factors in deciding whether prejudice exists. These include “whether the debtor was surprised or caught unaware by the assertion of a claim that it had not anticipated; whether the payment of the claim would force the return of amounts already paid out under the confirmed plan or affect the distribution to creditors; whether payment of the claim would jeopardize the success of the debtor’s reorganization; whether the allowance of the claim would adversely impact the debtor actually or legally; and whether allowance of the claim would open the floodgates to future claims.” Id. at 646, citing Pro-Tec Serv., LLC v. Inacom Corp. (In re Inacom Corp.), No. 00-2426, 2004 WL 2283599 *4 (D. Del. October 4, 2004), citing In re O’Brien Envtl. Energy, Inc. 188 F.3d 116, 126-28 (3d Cir. 1999).
After considering the four factors, the Garden Ridge court found that factors 1, 2 and 4 (prejudice, length of delay, and good faith) supported the creditor’s request for allowance of the late filed claim. The court recognized that the creditor was “careless in its obligation to file its claim by the deadline,” however, this factor alone was not enough to support denial of the claim.
The creditor in Garden Ridge was fortunate in that its claim was not disallowed even though it was filed one week after the bar date. However, Garden Ridge should remind creditors that they carry the burden of establishing excusable neglect and should take all necessary steps to insure their claims are filed before the passing of the bar date. In Hoos & Co. v. Dynamics Corp. of Am., 570 F.2d 433, (2d Cir. 1978), the Second Circuit explained why courts strictly enforce the claims bar date in a bankruptcy proceeding:
The practical, commercial rationale underlying the need for a bar date are [sic] manifest. The creditors and bankruptcy court must be able to rely on a fixed financial position of the debtor in order to intelligently evaluate the proposed plan of reorganization for plan approval or amendment purpose. After initiating a carefully orchestrated plan of reorganization, the untimely interjection of an unanticipated claim, particularly a relatively large one, can destroy the fragile balance struck by all the interested parties in the plan. Given the time sensitivity of such financial undertakings, the consequent delay in reevaluation necessitated by the late allowance of the claim may often spell disaster to recovery, even where ultimate approval is forthcoming. These considerations and realities militate in favor of restraint and caution in allowing untimely claims.