Are you a creditor in a bankruptcy case? Just because your borrower has filed bankruptcy doesn't mean you'll never see a penny. In many cases—particularly a Chapter 7 bankruptcy—the court will find no assets it can liquidate to pay your debt. In other cases, like a Chapter 13 case, the debtor makes monthly payments for three to five years. So you will have a fair chance of getting something out of it, but only if you take the time to fill out, document, and file a proof of claim form.
This article will help guide you through the form if you've been named as a creditor in a bankruptcy case.
As of April 2016, the bankruptcy courts have required a new style of the claim form. In a lot of ways, it's easier for creditors to navigate. It also contains a lot more explanation and notes than the previous versions.
At the top of the form, there is a box to identify the debtor by name, the pending case number, and the bankruptcy court in which the case is pending. You can determine the name of the bankruptcy court and the case number by looking at the other documents you have received from the court or the clerk.
Next, comes a series of questions that identify your claim:
Who Is the Current Creditor?
If you're the creditor or you represent the creditor, identify that here.
Has This Claim Been Acquired From Someone Else?
If you bought or otherwise obtained the right to the claim from another person or a company, identify the person or company.
Where Should Notices and Payments to the Creditor be Sent?
You will enter your details here, including your name and contact details. If the address to which payments should be sent is different, enter this in the appropriate section as well.
Does This Claim Amend One Already Filed?
The court's claims registry is the court's list of claims filed in a case. Each claim receives a unique number. If this is an amended claim, you can obtain the number for the original from the office of the clerk for the bankruptcy court where the case is pending.
Do You Know if Anyone Else Has Filed a Proof of Claim for This Claim?
Perhaps there are two claimants for the same money. You must input the name of that creditor if it applies.
Do You Have Any Number You Use to Identify the Claim?
This identification number would be how you identify the claim in your system, like the debtor's account number.
How Much Is the Claim?
Insert now much the debtor owes you. Remember, you will be required to support your claim with additional documentation if it is available.
List if the claim includes any interest or other charges already accrued, state that in the space provided.
What Is the Basis of the Claim?
This section is where you would put the nature of your claim. Some examples listed are "goods sold," "money loaned," or "services performed." Those are just examples. You are not limited—you can provide whatever description best fits your claim.
Is All or a Part of the Claim Secured?
If the debtor puts up collateral on the debt, it is secured. Whether the claim is fully or partially secured depends on the amount owed and the collateral's value. The claim is only secured up to the value of the collateral. Beyond that, the claim is unsecured.
This question also asks if the security agreement is perfected. That refers to how the security agreement is registered, recorded, or otherwise made available for interested parties to discover.
Is the Claim Based on a Lease?
Include the amount needed to cure the defaulted lease as of the date the bankruptcy case was filed.
Is the Claim Subject to a Right of Setoff?
If the debtor owes you money, and you owe the debtor money, they may cancel each other out—at least partially. This tradeoff is known as a right of setoff. Identify the property you have that could be setoff against the claim.
For instance, if you have a deposit account at the bank, the bank owes you that money. If you also borrowed $1,000 from the bank, the bank could apply the $500 it owes you against the $1,000 you owe the bank. In that case, the property you identify is the bank account.
Is This Claim Entitled to Priority Under 11 U.S.C. Sec. 507(a)?
There are several classes of debt that are entitled to priority. These debts will be paid before other types of debt if there isn't enough money to pay all approved claims in full. Understanding the difference between a priority claim and a non-priority claim can be tricky, and you should consult a qualified bankruptcy attorney to help you.
Finally, you are required to identify yourself and sign the claim form. Every claim form is signed under penalty of perjury, which means you can be prosecuted, and filed or jailed for lying on the form.
You need to file any supporting documentation you have with your claim form. This documentation will include promissory notes, contracts, invoices, security agreements, or other writings that prove the agreement. You may submit things like monthly statements, pay records, and ledgers.
The supporting documents together should show:
- That a legal debt exists
- The debt balance owed
Without the supporting documents—which are required under the bankruptcy rules—the proof of claim is incomplete and will likely draw an objection from the trustee or the debtor.
When to File a Proof of Claim
In a Chapter 7 case, if the bankruptcy trustee finds assets of the debtor that he or she can sell or liquidate, he will notify the creditors that there will be a distribution. In that case, you will be notified of a deadline to file a proof of claim form — a form you must file if you wish to be considered for payment. If you don't, no payment will be made, even if the claim is valid.
In a Chapter 13 case, you will have to file your claim form 90 days after the meeting of creditors. You will not be paid unless you file a proof of claim. If your debt is secured, but you file no claim form, the debtor can file one for you to ensure you're paid. When that happens, you have no control over what the debtor includes in the form, but you can amend it.
Objections to Proof of Claim
The bankruptcy court approves most proofs of claim. But in some cases, the debtor, trustee, or another party can object to your claim before a judge grants that approval. Here are some common reasons that may apply:
- If the claim amount is incorrect
- If the claim indicates a debt is secured when it is not
- If the creditor fails to provide any supporting documentation
Any objections must be received in writing by the bankruptcy court, with a copy served to the creditor at least 30 days before a hearing.
The Bottom Line
If you're a creditor who has been named in a bankruptcy case, you can't stake your claim unless you file a special form and submit it to the bankruptcy court in a timely fashion. This process is known as the proof of claim, which can be downloaded from the U.S. Courts website. Keep in mind that you'll need to support your claim with documents that establish a relationship that exists with the debtor, outlining the nature of the debt and how much money you're owed.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.