In re Nowak

586 F.3d 450 (2009)

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In re Nowak

United States Court of Appeals for the Sixth Circuit
586 F.3d 450 (2009)

  • Written by Jody Stuart, JD

Facts

Michael and Christina Nowak (debtors) had a mortgage on their home with PCFS Financial (PCFS) (creditor). Later, in 2001, the Nowaks filed for bankruptcy. PCFS was a secured creditor and had legal representation throughout the bankruptcy proceedings. Lydia Spragin, appointed trustee for the Nowaks’ estate, issued notices to the Nowaks’ creditors to file proofs of claim. In 2001, Spragin moved to employ an attorney for the purpose of voiding PCFS’s lien on the Nowaks’ home, asserting the mortgage was invalid because the mortgage’s execution had not been properly witnessed. Spragin also filed a notice of intent to sell the home. In 2002, PCFS objected to the sale because the proposed sale price would not satisfy the lien and instead would create a deficiency. The bankruptcy court overruled PCFS’s objection to the sale. In 2003, the court voided PCFS’s lien, making PCFS an unsecured creditor. In 2007, Spragin did not include PCFS as a creditor in the proposed estate distribution because PCFS had not filed a proof of claim. PCFS moved for the bankruptcy court to allow an informal proof of claim but did not explain PCFS’s failure to file a timely, formal proof of claim. The bankruptcy court ruled against PCFS. PCFS appealed to the bankruptcy appellate panel, which also denied PCFS’s claim. PCFS appealed, arguing the bankruptcy court had abused its discretion.

Rule of Law

Issue

Holding and Reasoning (Gilman, J.)

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