Background
Aegis Asset Management filed for bankruptcy, and its trustee sold real property free and clear of liens. Cloud Nine Properties filed proofs of claim for three properties but did not attach evidence that it owned the promissory notes on the filing date. INXS Seven objected to the claims, and the bankruptcy court granted summary judgment disallowing them because Cloud Nine lacked standing. The District Court affirmed, and Bay United Holdings, which later acquired Cloud Nine’s claims, appealed.
The court’s reasoning
The court reviewed the grant of summary judgment de novo. Under federal bankruptcy rules, a proof of claim is presumed valid only until a party in interest objects with substantial factual basis. Once objected to, the claimant must prove the validity of the claim. State law governs the enforceability of the claim, and Florida law requires a party to own the note to enforce it via foreclosure. Therefore, a party must own the note to file a valid claim in bankruptcy. Cloud Nine failed to show it owned the notes when it filed the claims, and the bankruptcy court correctly disallowed them.
Simply put, in bankruptcy, the validity of a claim turns on whether the claim was brought by a party entitled to enforce it. Where a creditor does not show it has the right to enforce its claim, the claim is properly disallowed.
In Re: AEGIS ASSET MANAGEMENT, LLC Debtor. BAY UNITED HOLDINGS, LLC v. INXS 7, LLC, 25-10331 (11th Cir. 2026)
What it means going forward
Creditors must ensure they hold the promissory notes at the exact moment they file proofs of claim in bankruptcy. Failure to do so, even if the debt is valid and the creditor eventually acquires the notes, will result in the disallowance of the claim.