In re: Borrows, No. 10-22788 (Bankr. W.D. Wash., February 18, 2011).
When can a Trustee bring an objection to a creditor's claim in bankruptcy? It appears that the answer is most of the time, according to a recent Washington bankruptcy decision.
Once a debtor files his bankruptcy petition, a creditor receives notice of the petition and then must submit a proof of his claim against the debtor in order to receive payment. In the case at hand, the United States Trustee objected to a proof of claim submitted on behalf of Bank of America on the grounds that the Bank had not submitted proper documentation along with its proof of claim. Bank of American then challenged the trustee's right to bring the objection.
Bankruptcy Code section 307 provides that the trustee may raise, appear and be heard on any issue in any case or proceeding under bankruptcy law, but may not file a plan pursuant to section 1121(c). The court in this case held that a trustee, under this section, has the right to object to anything during the course of the proceedings. However, Bank of America argued that, despite this provision, section 502(a) of the Bankruptcy Code deems a claim allowed unless a party in interest objects, and the trustee is not a party in interest.
The court said that a trustee is not barred from appearing where particular actions are reserved to parties in interest, because section 307 grants broad powers to the Trustee. As a result, the court founds that the United States Trustee has standing to bring an objection under the circumstances of the case.
