Understanding Bankruptcy Claims

Notice


Please note that the information below pertains to bankruptcy cases under Chapter 11 of the U.S. Bankruptcy Code. Cases filed under Chapters 7, 9 and 13 may differ materially. This summary does not purport to cover all the issues that a creditor or party in interest may need, or want, to know about claims. Creditors should not rely on the information contained herein, and are advised to seek counsel from their legal or financial professionals on these or other matters.

What is a bankruptcy claim?


The Bankruptcy Code defines a claim as: (1) a right to payment; (2) or a right to an equitable remedy for a failure of performance if the breach gives rise to a right to payment (11 U.S.C. § 101(5)).

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What is a proof of claim?


A proof of claim is a written statement filed by a creditor in order to assert and preserve a creditor's right to share in a distribution of the assets of the bankruptcy estate. By filing a proof of claim, a creditor submits itself to the bankruptcy court's jurisdiction and waives its right to a jury trial. A properly filed proof of claim should contain an Official Form B410, a copy of which is available at http://www.uscourts.gov. The proof of claim should also include evidence documenting the claim, such as copies of invoices, purchase orders, delivery receipts, contracts, etc. Originals of the supporting documentation should not be provided as these may be destroyed after the form is scanned.

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Who must file a proof of claim?


In a Chapter 11 case, any creditor whose claim is not scheduled (i.e., listed by the debtor on the debtor's schedules) or is scheduled as disputed, contingent, or unliquidated must file a proof of claim in order to be treated as a creditor for purposes of voting on the plan and distribution under it (F.R.B.P. 3003(c)(2)). But filing a proof of claim is not necessary if the creditor's claim is scheduled in the proper amount (but is not listed as disputed, contingent, or unliquidated by the debtor) because the debtor's schedules are deemed to constitute evidence of the validity and amount of those claims (11 U.S.C. § 1111). If a scheduled creditor chooses to file a claim, a properly filed proof of claim supersedes any scheduling of that claim (F.R.B.P. 3003(c)(4)). It is the responsibility of the creditor to determine whether the claim is accurately listed on the debtor's schedules.

In a Chapter 7 case, a proof of claim is not required to be filed as there are usually no funds available for distribution. However, a notice to file a proof of claim will be generated if it is determined that there are funds available for distribution. In such a case, a proof of claim must be filed in order to participate in the claims process.

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How can a creditor determine whether they are listed on the debtor's schedules?


A debtor must file its schedules of assets and liabilities with the bankruptcy court. Creditors can access bankruptcy court filings via Public Access to Court Electronic Records (PACER). PACER is an electronic public access service that allows users to obtain case and docket information online from federal appellate, district, and bankruptcy courts. PACER is maintained by Administrative Office of the U.S. Courts, which is part of the Judicial Branch of the U.S. Government. PACER is a paid service (currently $0.10 per page) that requires users to register for a login and password.

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What if the debtor amends its schedules?


The debtor must provide notification to those creditors whose names are added (or deleted) and whose claims are listed or modified as a result of an amendment to the schedules. The notification also should advise such creditors of their right to file proofs of claim and that their failure to do so may prevent them from voting upon the debtor's plan or participating in any distribution under that plan. When a debtor amends the schedule of liabilities to add a creditor or change the status of any claims to disputed, contingent, or unliquidated, the debtor must provide notice of the amendment to any entity affected (F.R.B.P. 1009(a)).

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When must a proof of claim be filed?


A proof of claim must be filed by the time set by the bankruptcy court pursuant to F.R.B.P. 3003(c). The bankruptcy court sets this time automatically per its local rules or upon a debtor's motion. The deadline by which all proofs of claim must be submitted is called the bar date. Once the bar date is set, a notice is sent to all creditors and parties in interest of the deadline to file a proof of claim, along with instructions on how to submit the proof of claim.

Creditors who are not listed on the debtor's schedules, or are listed in an incorrect amount, or are listed as disputed, contingent, or unliquidated must file a proof of claim by the bar date. Failure of a creditor to timely file a proof of claim by the bar date could prohibit a creditor from voting on the plan and receiving any distributions under it.

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Where do I file a proof of claim?


A creditor or party in interest should carefully review the Notice of Bar Date. A Notice of Bar Date may instruct a creditor to send the proof of claim to a third-party bankruptcy claims agent hired by the debtor to process claims, or may simply require that the proof of claim be filed electronically via ECF filing with the respective bankruptcy court. Additionally, a Notice of Bar Date will specify the address to which the proof of claim must be sent if one is using regular mail or an overnight courier. In most cases, filing proofs of claim by fax or email is not permitted.

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What if I'm unsure of the amount of my claim?


The proof of claim does not need to reflect a liquidated amount in order to be timely filed. The debt can be contingent upon an event to occur in the future and, upon such occurrence, the proof of claim can be amended after the bar date to reflect the liquidated, non-contingent amount due. Unlike requests to file a late proof of claim, amendments to timely filed proofs of claim are freely granted and seldom opposed on timeliness grounds.

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Will filing a proof of claim ensure a distribution?


No. At some point during the pendency of the bankruptcy case, the debtor (or trustee or another party in interest) will review all filed claims and compare claims against the debtor's books and records in order to determine the validity and amount of all claims. This process is called claims reconciliation. The debtor (or trustee or another party in interest) will file objections to claims that do not match the debtor's books and records. The objection could seek to amend the amount, priority, or obligor of the claim. If a claim is objected to, the debtor will send a notice to the creditor detailing the nature of the objection and the method and time frame in which to respond to the objection. A creditor must be vigilant to timely respond to any objections that may be filed in response to the proof of claim. Failure to respond to a claim objection in a timely manner may result in the reduction, elimination or reclassification of the claim.

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Tips and Common Mistakes when completing the proof of claim.


Care should be taken when completing the proof of claim. The most common mistake is that the creditor incorrectly confuses the debtor and creditor fields. A debtor is the person, corporation or other entity that has filed for bankruptcy protection. A creditor is a person, corporation or other entity to whom the debtor owes a debt that was incurred before the date of the bankruptcy filing (called the petition date).

The second most prevalent mistake is that the creditor uses the wrong case number. Case numbers are assigned to each and every person or corporate entity that files for bankruptcy, so many cases have a jointly administered "lead case" number and separate case numbers for the parent company's subsidiaries. Make sure you know where your claim is scheduled (parent company versus subsidiary) and file your claim against the appropriate debtor.

Lastly, one of the most important aspects of a properly filed proof of claim is that the individual completing the claim must sign and date the Official Form B410 (F.R.B.P. 9011). An original signature is required for proofs of claim submitted via mail. If the claim is filed electronically, F.R.B.P. 5005(a)(2) authorizes courts to establish local rules specifying what constitutes a signature. By signing this form, the creditor is declaring under penalty of perjury that the information provided is true and correct to the best of their knowledge, information and belief. Criminal penalties apply for making a false statement on a proof of claim.

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