Extended Claims Bar Date for Federal Credit Unions
Recently, the New Mexico Bankruptcy Court held that a federally chartered credit union was a “governmental unit” under the Bankruptcy Code; thus, the credit union was entitled to the extended claims bar date applicable to governmental units in a Chapter 7 bankruptcy case.
In this Chapter 7 case, a federally chartered nonprofit credit union filed its proof of claim three days after the expiration of the claims bar date, but several weeks ahead of the extended governmental claims bar date. To share in the distribution to unsecured creditors, the credit union argued that it was subject to the governmental claims bar date and, therefore, filed a timely proof of claim. To qualify as a governmental unit, the court had to determine that the credit union was an “instrumentality of the United States.” While no specific test determines what qualifies as an “instrumentality of the United States,” the court considered factors including whether the particular entity performs an important governmental function, whether the entity is subject to extensive government regulation, and whether the entity is exempt from taxation.
The court found that federal credit unions are governmental units entitled to the extended deadline for filing claims. While some jurisdictions have been hesitant to say that federal credit unions are governmental units for all purposes in the Bankruptcy Code, the New Mexico bankruptcy court found no compelling reason to treat the defined term differently in different parts of the Bankruptcy Code. In reaching this conclusion, the court highlighted the important governmental functions federal credit unions perform, their extensive amount of federal regulation, their immunity from state taxation and their federal charters.
Notably, this decision aligns with a 1997 decision by Maryland Bankruptcy Court, In re Trusko. In the Maryland case, the court determined that the legislative history for the Bankruptcy Code and the Federal Credit Union Act suggested that federal credit unions should be considered governmental units entitled to the extended deadline for filing claims under Section 502(b)(9) of the Bankruptcy Code.
Practice Point: This case is a reminder that in bankruptcies, some financial institutions are subject to the governmental claims bar date, while others remain subject to the ordinary claims bar date. In any event, claimants should endeavor to file their claims promptly regardless of which deadline applies.
Please contact Christopher R. Rahl with questions concerning bankruptcy claims procedures.