This morning I reviewed a proof of claim filed in one of our Chapter 13 bankruptcy cases. It was filed by American General Financial Services, LLC for a $7,000 debt that was incurred two years ago for an in-ground swimming pool. The local merchant was Island Recreational. They filed the claim as “secured.”
Here’s the problem: The proof of claim contained an attachment that consisted of the one-page quicky credit application my clients filled out at the time they purchased the pool and applied for financing.
Attaching this document was not the problem; the creditor’s failure to remove or redact my clients’ Social Security numbers was.
Social Security Numbers Are Sacred and Confidential in Bankruptcy Proceedings
With identify theft becoming a significant concern this past decade, the bankruptcy courts adopted a new privacy rule that was made part of the official Bankruptcy Rules.
Bankruptcy Rule 9037 requires any party filing a document to ensure that any references to Social Security numbers and other sensitive data are deleted or redacted.
I previously wrote about this: Maintaining Privacy in Bankruptcy Court Filings .
Getting the Creditor to Immediately Rectify the Situation
I immediately e-mailed the creditor’s “Bankruptcy Specialist” who had prepared the proof of claim and advised her that not only did she violate the law, but she was exposing my client to the possibility of identity theft.
Technically the creditor was in contempt of court for violating Rule 9037.
I also considered bringing a motion seeking sanctions against the creditor. However, doing some quick research, I learned that some courts have refused to award sanctions in such instances, stating that Rule 9037 does not provide a private cause of action to do so.
Rebecca Rose, a law student on the St. John’s Law Review, recently wrote a summary of of the Matthys case which held that Disclosure of Social Security Number Does Not Give Debtors a Private Right of Action .
Meanwhile, other courts have stated that sanctions are necessary to deter this type of conduct and have indeed awarded them. I found a great article in the ABI Journal about this — Rule 9037: Consequences of Failure to Redact “Personal Data Identifiers”  However, the link is only available to ABI members.
However, since the Second Circuit did not have any case law on the subject, I decided it would probably not be worthwhile to test the waters on this.
In any event, I tend to be a pragmatist, and I was mostly concerned about achieving a quick resolution and an appropriate disposition of the problem for my clients.
The Offensive Proof of Claim was Removed and Amended
The creditor’s Bankruptcy Specialist, within minutes of receiving my e-mail, contacted me and agreed to resolve the problem — and she did so in a very pleasant and apologetic manner.
Within an hour, she had gotten the Bankruptcy Court Clerk to permanently remove the offensive document from the court’s records.
This was fortunate because some bankruptcy courts in other jurisdictions handle such matters differently — they will only block the offensive material temporarily while requiring counsel to bring a motion for a protective order, a significant amount of work.
She then filed an amended proof of claim, now treating the debt as unsecured, rather than secured. This will save us a little time later when we need to reconcile the filed claims in preparation for proceeding towards confirmation of the Chapter 13 plan.
Sure, I could have been meaner and more aggressive. I could have fought for some sanctions or attorney’s fees. However, I resolved the problem rather quickly, and the creditor made my life a little easier by amending the proof of claim. I think I did OK for my client.
Had the creditor’s Bankruptcy Specialist been nasty or unresponsive or not conciliatory, I would have handled the matter most differently.
Of course there was a possibility that someone paid the government an ECF fee to view the proof of claim, but I think the possibility that a person with illicit intent did so within a relatively-short period is exceptionally unlikely.