On July 19, 2022, the Ninth Circuit Bankruptcy Appellate Panel ruled that a creditor’s proof of claim — while meeting the standard of the Bankruptcy Code — was insufficient to enforce the debt under state law and was therefore subject to disallowance.

In In re Myers, included on the debtors’ chapter 13 scheduled debts was a “disputed” credit card account with an outstanding balance of $7,905.88. The current creditor filed a proof of claim, including a document entitled “Account Supplemental Data,” which included the names of the original and current creditors, a breakdown of the amounts due, and the dates of the last transaction and last payment. The debtors’ counsel sent a written request to the creditor requesting additional documentation required under Nevada law to enforce a credit card debt. Specifically, counsel requested: 1) the credit card application or evidence that the debtors incurred charges on the card and made payments thereon; 2) periodic billing statements; 3) authentication via an affidavit of the custodian of written records; and 4) a chain of title evidencing the creditor’s standing to enforce the claim.

In response, the creditor provided five unauthenticated account statements and a copy of the terms and conditions of the credit card agreement. The creditor also amended its proof of claim to include additional documentation related to standing. The debtors filed an objection. While they acknowledged that the creditor had complied with Rule 3001(c)(3), they argued that the additional documentation did not comply with Nevada law. The creditor filed a response arguing that the debtor’s objection did not overcome the prima facie validity of its claim and that the documentation provided was sufficient under Nevada law. The bankruptcy court agreed with the creditor and overruled the objection. The debtors appealed.

The Ninth Circuit Bankruptcy Appellate Panel found that it was “undisputed” that the creditor had provided the information required under Rule 3001. But the appellate panel agreed with the debtors that the documentation was inadequate under Nevada law because the creditor did not produce either an authenticated written credit card application or authenticated evidence that the debtors incurred charges on the account and made payments thereon. “[The creditor] provided copies of account statements for the period beginning November 20, 2020 and ending April 20, 2021. The earliest statement showed a beginning balance of $7,574.18 and a $176.30 payment posted December 14, 2021. But there was no evidence of any of the charges making up the beginning balance or who made them. Moreover, the statements were not authenticated by a custodian of written records, but even if they had been, they were insufficient.”

While the creditor noted that the debtors did not deny opening the account and making charges nor did they provide any substantive evidence to refute the prima facie validity of the documentation, the court found that did not address the “real issue”: the fact that the creditor did not provide the documentation required to enforce its claim under state law. In short, documentation that was more than adequate under the Bankruptcy Rules nonetheless subjected the claim to disallowance (without leave to supplement the proof of claim) because the documentation was inadequate as a matter of non-bankruptcy law.

The creditor has filed a notice of appeal with the Ninth Circuit. The opening brief is due January 27, 2023. Troutman Pepper will continue monitoring this litigation and will provide updates as they become available.