What Is a Bankruptcy Proof of Claim?

Definition & Examples of Bankruptcy Proof of Claim

Woman reviewing bankruptcy paperwork and looking stressed
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A bankruptcy proof of claim is a form that any creditor must file with the court before they can receive payment in a bankruptcy case. The bankruptcy trustee will use it to review each creditor's type of claim and how much they're owed so the trustee can determine payments.

If you've received a notice from a bankruptcy court about someone who owes you money, that doesn't mean you will automatically get paid. You must file a proof of claim and the trustee will determine how much you'll receive, if anything. Learn more about how this process works.

What Is a Bankruptcy Proof of Claim?

Before a creditor can be paid in a bankruptcy case, they must fill out and file a proof of claim form with the bankruptcy court. The form is almost always available on the bankruptcy court's website, or you can download a copy of the official form on the website for the United States courts. 

The form requires that the creditor indicate the name of the debtor, the case number, the creditor's name and address, and the amount of the debt. The creditor must also indicate whether the claim is secured—protected by collateral such as a home or car—or unsecured.

The creditor must also fill out a few other details, including whether the claim is entitled to priority payment over other creditors (domestic support obligation such as child support would qualify). Finally, the creditor must attach copies of any documents that support the claim. The form must be completed and filed by a deadline established by the court.

Creditors typically have 70 days after the date of the bankruptcy petition to file a proof of claim. Government entities usually have 180 days, however. These time frames can vary by bankruptcy chapter, so be sure to check the deadline when you receive notice.

How a Proof of Claim Works

Generally, a proof of claim will only be filed by a creditor if the bankruptcy trustee declares the case an "asset" case. In a "no-asset" case, there are no funds available to disperse. If it is an asset case, the court will send out a notice to this effect and will include information about how to file and the deadline.

The trustee will review all proof of claim forms. Generally, trustees will approve claims unless there is an objection from a "party of interest," such as the person holding the debt or another party with financial stakes in the case. This objection must be filed at least 30 days before the bankruptcy hearing.

Once the trustee has decided on which claims are approved, they will determine payments based on available funds from the debtor's payment plan. First, the trustee will take a small percentage of anything they collect from the debtor.

After that, priority debts are paid. These include domestic support obligations; wages, salaries, or commissions up to a certain amount and earned within 180 days of the bankruptcy; contributions to employee benefit plans; a certain amount of deposits for the purchase or rental of property; and taxes and penalties owed to the government. Once all the priority debts are paid, whatever is left goes to the unsecured creditors (those without collateral), on a pro-rata or proportional basis. 

In many Chapter 7 cases, there may not be anything left to pay creditors because the debtor can exempt quite a bit of property. Exempt property isn't sold or auctioned off during a bankruptcy. The non-exempt property is sold by the court-appointed trustee and distributed to creditors as cash payments.

Claims Trading

A secondary market has sprung up for the buying and selling of bankruptcy claims, called claims trading. A creditor not involved in the bankruptcy may buy the claim of a creditor that is owed money by the debtor. If this occurs, a document indicating the claim trade must be filed with the bankruptcy court. This is especially common in Chapter 11 bankruptcy cases.

What Creditors Should Do in a Bankruptcy Case

If you're a creditor pursuing a debt in a bankruptcy case, you need to be very careful to read all of the documents that you receive regarding the case. The best thing to do is to hire a bankruptcy attorney to help you navigate the case and protect your rights as a creditor. You'll likely need professional guidance, even if it's simply to have an experienced attorney review the form after you've filled it out.

Key Takeaways

  • A creditor must file a proof of claim form in order to get paid in a bankruptcy case (although filing does not guarantee payment).
  • The form details any outstanding debts the creditor claims the debtor owes them, along with any detailed information and documentation to prove these liabilities.
  • The bankruptcy trustee will review all proof of claim forms and any objections to determine which creditors are eligible to receive payment.

Article Sources

  1. U.S. Courts. "Official Form 410: Proof of Claim." Accessed Aug. 4, 2020.

  2. Nolo. "What Is a Proof of Claim in Bankruptcy?" Accessed Aug. 4, 2020.

  3. The Bankruptcy Site. "Understanding Secured, Unsecured & Priority Claims in Bankruptcy." Accessed Aug. 4, 2020.

  4. U.S. Courts. "Chapter 7 — Bankruptcy Basics." Accessed Aug. 4, 2020.

  5. JSTOR. "The Emerging Market for Trade Claims of Bankrupt Firms." Accessed Aug. 4, 2020.