October 8, 2021

Third Circuit Clarifies Chapter 11 Timeline for Bankruptcy Attorneys

The Third Circuit Court of Appeals is the first of the circuits to examine claims filed on a Chapter 11 bankruptcy between the confirmation and the effective date of the plan. Bankruptcy attorneys, who file claims that arise between the confirmation date and effective date, must file them before the administrative bar date.

Dates matter in bankruptcy. After the bar date, no one can file claims against the debtor (unless they qualify for an exception). The debtor does not have to pay these claims. Ellis v. Westinghouse Electric Company, LLC, (2021), raises the question about what happens when a claim is submitted after the debtor files for bankruptcy, but before the court confirms it.

The Third Circuit Court of Appeals is the first of the circuits to examine claims filed on a Chapter 11 bankruptcy between the confirmation and the effective date of the plan. Bankruptcy attorneys, who file 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 first filed for bankruptcy. They then fired Timothy Ellis two months after the bankruptcy and gave him notice of all the relevant dates. Westinghouse hit a delay because of some regulatory filings.

The bankruptcy plan became effective two months after they fired Ellis, and four months after they filed for bankruptcy. 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 a summary judgment because Ellis did not file an administrative claim, and therefore could not receive money from the bankruptcy. The District Court disagreed and said the debtor could not discharge the claim. The court granted summary judgment on the issue to Ellis. This action kept his lawsuit alive.

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

Why Timelines Matter

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

A bankruptcy sets a bar date to give the debtor a fresh start, allowing them to move forward without claims following. Ellis’ bankruptcy attorney should have filed a request for payment before that 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.‌