Filing Proof Of Claim Not Necessary To Move Forward With Foreclosure In Bankruptcy Proceedings, Says Federal Appeals Court

Lexology reports:

• The failure to timely file a proof of claim can have significant ramifications on a creditor’s right. Recently, the Seventh Circuit in In the Matter of Richard Louis Alexander, 2011 U.S. App. LEXIS 17110 (7th Cir. Aug. 16, 2011), held that a secured creditor who is only looking to proceed with a foreclosure action against the mortgaged property need not file a proof of claim to protect its rights to the collateral. As such, the failure to file a proof of claim was irrelevant to the secured creditor’s request for relief from the automatic stay to pursue a state court foreclosure action.

***

• On appeal, the Seventh Circuit dismissed the notion that filing a proof of claim was required in order to seek stay relief to proceed with a foreclosure action against the mortgaged property:
  
  “A secured creditor need not file a ‘proof of claim’ unless the creditor wishes to take part in the distribution of estate assets; here the creditors sought to separate the mortgaged property from the bankruptcy estate and vindicate their claims in foreclosure proceedings in state court, as the bankruptcy code permits. See 11 U.S.C. § 506(d)(2); In re Penrod, 50 F.3d 459, 461 (7th Cir. 1995) (‘A secured creditor can bypass his debtor's bankruptcy proceeding and enforce his lien in the usual way, which would normally be by bringing a foreclosure action in a state court. This is the principle that liens pass through the bankruptcy unaffected.’); In re Pence, 905 F.2d 1107, 1110 (7th Cir. 1990).”

For more, see Seventh Circuit: failure to file proof of claim does not foreclose your rights (may require paid subscription; if no subscription TRY HERE - then click the appropriate link).