The debtor filed for bankruptcy because it does not have the necessary liquidity to pay its obligations. The Bankruptcy Code states that the filing of a bankruptcy petition suspends all actions against the debtor. This so-called “automatic stay” prevents creditors from collecting debts or pursuing other remedies against the company. See the four steps to selling your bankruptcy claim.
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Automatic stay
Following the filing of a Chapter 11 petition, the bankruptcy code protects the debtor with an automatic stay against creditor actions. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. All creditors are essentially frozen in their pre-petition position with at least three kinds of risk that buying your bankruptcy claim eliminates.
The automatic stay is designed to provide the debtor with time to investigate and formulate a plan of reorganization, negotiate the plan with creditors and solicit votes, and complete the restructuring. Prepetition claims are not paid until the conclusion of the case. The form, amount and manner of payment can vary widely depending on the debtor’s situation. Trade claims in bankruptcy offer several benefits to creditors right away.
Filing a proof of claim (official B10) form
Though specific actions to collect the debt are prohibited, creditors should file a proof of claim form with the court or third party claims agent hired by the debtor. Creditors should keep an eye out for the bar date notice, which specifies the date by which claims must be filed. Claims filed after the bar date will be expunged and disallowed as late filed.
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 schedule of liabilities.
In Chapter 7 case, a notice to file a proof of claim will be mailed to creditors if it is determined that there may be funds available for distribution. A proof of claim must be filed in order for the claimholder to participate in the claims review and distribution process.
Conclusion
As a creditor, it is critical to make sure your claim is filed in a timely manner and acknowledged by the debtor. Failure to do so could result in your claim being completely ignored or disallowed. Failure to complete and timely file the proof of claim B10 form can also result in your claim being disallowed or recovering much less than similarly situated claims.
