A creditor must have an enforceable claim when it files its claim in bankruptcy court. Accordingly, the bankruptcy court properly disallowed a claim filed by one company based on a mortgage and note held by an affiliated family-owned company. Bay United Holdings, LLC v. INXS 7, LLC (In re: Aegis Asset Mgmt., LLC), ___ F.4th ___, 2026 WL 2131679 (11th Cir. July 24, 2026).
Before her death, Margaret Mitchell (not that one) was the sole owner of two companies: Bob Mitchell Associates and Cloud 9. In 2015, Ms. Michell transferred to Cloud 9 several notes and associated mortgages held by her personally or by Bob Mitchell Associates. Due to an apparent oversight, at least three such notes and mortgages were not transferred to Cloud 9 before Ms. Mitchell’s death in 2022.
In 2019, Aegis Asset Management, LLC filed for Chapter 11 bankruptcy. After the case was converted to one under Chapter 7, the trustee identified several parcels of real property that Aegis had transferred to related entities for no consideration. The trustee filed an adversary proceeding against the recipients of the properties, alleging fraudulent transfer. The parties to the adversary proceeding settled, agreeing that the properties would be treated as property of the estate and sold free and clear of liens, claims, and interests.
The trustee filed a motion to approve the settlement, serving notice of the motion on each of Ms. Mitchell; Bob Mitchell Associates; and Cloud 9. On March 29, 2021, the bankruptcy court approved the sale of the properties to INXS VII, LLC, requiring that any claims against the sale proceeds be filed within 30 days.
On April 28, 2021—the last day to file claims against the sale proceeds—Cloud 9 filed three claims, one for each of three properties sold to INXS VII. Cloud 9 attached to each proof of claim a mortgage and payoff letter for the relevant property. For one of the properties, the mortgagee listed was Ms. Mitchell; for the other two, the mortgagee was Bob Mitchell Associates. INXS VII objected to the three claims on the ground that the proofs of claim did not show any debt owed to Cloud 9 as of the time the claims were filed. In support of its motion for summary judgment on its objections, INXS VII submitted evidence showing that two of the three mortgages were transferred to Cloud 9 on March 14, 2023—well after the deadline for filing claims in the bankruptcy court—and the third became part of Ms. Mitchell’s estate at her death.
Cloud 9 assigned its claims in the bankruptcy to Bay United Holdings, LLC. Bay United responded to INXS VII’s summary-judgment motion, arguing that its claims should be allowed because Cloud 9 eventually acquired the mortgages and notes and no one disputed the existence of the underlying debts. After a hearing, the bankruptcy court indicated that it would grant INXS VII’s motion as to the two claims based on notes and mortgages transferred to Cloud 9 in 2023 and gave Bay United seven days to file additional evidence from the county public records with respect to the third claim—the one that had passed through Ms. Mitchell’s estate.
Bay United did not file any evidence from the public records. Instead, it filed affidavits from Ms. Mitchell’s estate planning attorney and from an Aegis representative. The attorney attested to his belief that Ms. Mitchell intended to include the notes and mortgages underlying Cloud 9’s claims when she transferred other notes and mortgages to Cloud 9 in 2015. The affidavit from the Aegis representative said that the notes and mortgages “have always been in the Mitchell family.” The bankruptcy court granted INXS VII’s motion for summary judgment, holding that Cloud 9 failed to establish that it had an enforceable interest in the notes and mortgages when it filed its claims in the bankruptcy court.
Bay United appealed to the district court, arguing that the existence of the mortgages was undisputed and that the specific ownership of the notes was a “technicality” and “scrivener’s error.” It would be a windfall to INXS VII, Bay United argued, if it were allowed to receive the properties free and clear of the mortgages. The district court affirmed the bankruptcy court’s ruling, agreeing that Cloud 9 had no enforceable right to payment when it filed its claims and that INXS VII took the properties free and clear. Bay United appealed to the Eleventh Circuit.
Reviewing the grant of summary judgment de novo, the Eleventh Circuit affirmed. Judge Tjoflat, writing for the court, began with Fed. R. Bankr. P. 3001(c)(1)’s requirement that when an entity’s claim for payment is based on a writing, the entity must attach a copy of the writing to its proof of claim. Absent an objection, the claim is presumed valid. In the face of a proper objection, however, the claimant must establish the validity of his claim.
The validity of a claim in bankruptcy is governed by state law subject to certain limitations imposed by the bankruptcy code. Under Florida law, which applied to the claims here, a party must be the owner or holder of a note to foreclose on the property attached to it. Accordingly, a party must be the owner or holder of a note to file a claim on the note in bankruptcy, “and a party has no claim before it owns the note.” Cloud 9 did not provide the evidence required on that point, and the bankruptcy court properly rejected its claim.
In a footnote, the court rejected Bay United’s “appeals to equity,” noting that “[t]hough bankruptcy courts are courts of equity, they ‘are not authorized in the name of equity to make wholesale substitution of underlying law controlling the validity of creditors’ entitlements.’” And the bankruptcy court’s power to render distributions so as to treat legitimate claimants equitably had no application to the situation presented in this case, because “Cloud 9 was simply not a legitimate claimant here. Regardless of family connections, Cloud 9, Bob Mitchell Associates, and Margaret Mitchell are, legally speaking, strangers.” Accordingly, the bankruptcy court was correct in disallowing Cloud 9’s claims.