Bankruptcy Rule 9011 is the bankruptcy court’s version of Rule 11 and it applies to proof of claim documents. When the Proof of Claim is filed by the original creditor, there is often little doubt about the filing creditor’s knowledge of the claim and that creditor’s possession of adequate supporting documentation.

What is the situation, however, when the filing creditor is not the original creditor, never had any pre-petition contact with the putative debtor, and has no original documentation related to the debt? The United States Court of Appeals For the Sixth Circuit addressed this question in Gerald and Janet Wingerter v. B-Line, LLC, 2010 U.S. App. LEXIS 1527; 2010 FED App. 0011P(6th Cir.).

B-Line LLC (“B-Line”) is in the business of buying debts at a discount and then trying to make a profit by collecting some or all of what is owed. B-Line sometimes deals with other collection agencies and not the original creditor. In those situations, B-Line does not obtain any original documentation concerning the debt from either the originating creditor or the intermediary collection agency. Rather, B-Line obtained representations from the intermediary collection agency concerning that agency’s verification of the debt and review of documents obtained from the originating creditor.

The Wingerters filed bankruptcy and did not schedule a debt owed to B-Line, the prior collection agency, Covenant, or the original creditor. Believing it held a valid claim, B-Line filed a proof of claim in the Wingerters Chapter 13 bankruptcy. B-Line did not attach any documentation to its proof of claim except for a computer print from B-Line’s computers asserting a debt owing. B-Line attached no documentation related to the debt because B-Line had no such documentation. The Wingerters objected to B-Line’s proof of claim and B-Line was forced to withdraw that claim when no supporting documentation could be located.

In a later hearing, the bankruptcy court found that B-Line violated Bankruptcy Rule 9011(b) by making representations to the bankruptcy court without a “reasonable prefiling inquiry.” See Rule 9011(b)(3). The Bankruptcy Court then ruled that B-Line could not continue the above-described business practice. The Sixth Circuit reversed this holding. The Sixth Circuit held that the representations that B-Line received was an adequate “prefiling inquiry” since Covenant had represented to B-Line that the debt was a “legal, valid and binding obligation” of the Wingerters.

Perhaps not directly related to the Rule 9011 analysis, it did not hurt that B-Line had filed 1,017 proof of claims on debts that B-Line acquired from Covenant and only 5 of those claims were ever subject to an objection with only 2 (including the Wingerters’ claim) being disallowed.

The final lesson in this case is that your “reasonable inquiry” under Bankruptcy Rule 9011 can be someone else’s work if that party has a good track record.