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Third Circuit Clarifies Timeline for Chapter 11 Administrative Claims

Oct 8, 2021

Dates matter in bankruptcy. After the bar date, no one can file claims against the debtor (unless they qualify for an exception). The Third Circuit in Ellis v. Westinghouse Electric Company, LLC, (2021), however, recently considered the question about what happens when an administrative claim is submitted after the bankruptcy court confirms a debtor’s Chapter 11 plan but prior to the effective date of the Chapter 11 plan.

The Third Circuit Court of Appeals is the first of the circuit courts to examine administrative claims filed in a Chapter 11 bankruptcy case between confirmation of the plan and the effective date of the plan. Administrative claims in Chapter 11 cases are those claims for expenses incurred for the actual and necessary costs of preserving the debtor’s bankruptcy estate.  Administrative claimants, such as bankruptcy attorneys, who file administrative claims that arise between the confirmation date and effective date, must file them before the administrative bar date.

The Case and Its Timeline

The American Bankruptcy Institute has provided a detailed review of the case in their article, “Chapter 11 Plans May Discharge Post-Confirmation ‘Admin’ Claims, Third Circuit Says,” which is summarized below.

In Ellis v. Westinghouse Electric Company, LLC, (2021), Westinghouse filed its Chapter 11 bankruptcy case, then two months later, fired employee, Timothy Ellis.Upon termination, Mr. Ellis received notice of all the relevant bankruptcy dates and deadlines.

Westinghouse’s Chapter 11 bankruptcy plan became effective two months after Westinghouse fired Ellis, and four months after it filed for bankruptcy protection. The “admin bar date” (by which time claimants must file all administrative claims) passed a month after Ellis’ firing. Ellis did nothing during that time.

Before the admin bar date, Ellis filed a complaint with the EEOC (Equal Opportunity Employment Commission), claiming Westinghouse discriminated against him because of his age. Two months after the admin bar date, Ellis sued Westinghouse. Ellis did not file an administrative claim during this process.

In District Court, Westinghouse asked for summary judgment because Ellis did not file an administrative claim, and therefore could not receive money from the bankruptcy estate. The District Court disagreed and said the debtor could not discharge the claim, and  granted summary judgment on the issue in favor of Ellis. This action kept his lawsuit alive.

The Third Circuit disagreed with the District Court.  Referencing Sections 503 and 1141 of the Bankruptcy Code, which allows bankruptcy courts to set bar dates and enforce them, the Third Circuit held that the discrimination claim was an administrative claim. The Third Circuit also held that §503 of the Bankruptcy Code allows bankruptcy courts to set admin bar dates and that claims not filed by that date should be discharged. Finally, the Third Circuit held that §1141(d)(1) gave a default rule on timing that courts can override through the bankruptcy plan or the confirmation order.

Why Timelines Matter

The Third Circuit is the first circuit to rule on this administrative claim timing issue. The other circuits may take this case as precedent. Even if they do not, this case is a warning to bankruptcy lawyers and other administrative claimants to keep track of dates and make sure they do not miss any deadlines.

A bankruptcy court sets bar dates to give the debtor a fresh start, allowing them to move forward without claims following.  Ellis or his attorney should have filed a request for payment before that bar date – even if they did not know the outcome of the lawsuit.

Need help navigating bankruptcy law? Schwartz Law, a commercial bankruptcy law firm in Nevada, can help.‌

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