Should You Object to that Claim Now or in The Next Bankruptcy Case? A Bankruptcy Court Discusses the Effect of Res Judicata in Claim Allowance and Disallowance

Posted by NCBRC - February 8, 2019

The Bankruptcy Court for the Central District of California recently examined whether a claim, allowed or disallowed in a previously dismissed bankruptcy, has res judicata effect in a subsequent bankruptcy. The court discussed the elements of res judicata in these circumstances.

The debtor had filed a previous chapter 13 case. In that case the creditor argued that the debtor (a corporate officer) was personally liable on a debt also owed by that corporation to the creditor. In state court proceedings the state court allowed a judgment only against the corporation and abstained on ruling on debtor’s personal liability due to the automatic stay.

The creditor filed a proof of claim against the debtor. The debtor objected to the claim. The Bankruptcy Court held a hearing and issued a ruling sustaining the debtor’s objection to the claim. The creditor did not appeal the order or timely move for relief from the order. Subsequently the debtor’s case was dismissed for failure to make plan payments.

The debtor refiled another chapter 13 bankruptcy and the creditor refiled her claim. The debtor objected and the creditor asserted the same arguments made in the old case plus one additional legal argument for liability under the federal Fair Labor Standards Act. The parties agreed that the second case objection to claim was identical to the first case’s objection, that the first objection was decided on the merits and the parties were identical. However, the creditor argued that since the first case was dismissed, the order disallowing her claim was not final since there was no discharge.

To read more and access the opinion click here.

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