A proof of claim in bankruptcy is a formal document that a creditor files with the bankruptcy court to show that they have a valid claim against the debtor's estate. The proof of claim lists the amount of the debt, the nature of the debt, and any supporting documentation.

When a debtor files for bankruptcy, the court sends notice to all creditors listed in the debtor's bankruptcy petition. Creditors then have a specific period, usually, 90-days, to file a proof of claim with the court. The court will review the claim, and if the claim is deemed valid, the courts will include the creditor in the debtor's bankruptcy case. This inclusion means the creditor will be entitled to payment from the debtor's estate. If the claim is deemed invalid, it will be disallowed, and the creditor will not receive payment from the debtor's estate.

Filing a proof of claim does not guarantee payment. It only allows the creditor to participate in the debtor's bankruptcy case and be considered for payment. The amount and priority of payment will depend on the specific circumstances of the debtor's case and the type of bankruptcy they have filed.

The Bankruptcy Trustee's Role in The Proof of Claim Process

The bankruptcy trustee plays a vital role in the proof of claim process in bankruptcy. The trustee is responsible for reviewing and verifying all proof of claim forms submitted by creditors. The trustee ensures that all claims are accurate, legitimate, and comply with the Federal Bankruptcy Rules. If the trustee finds a claim inaccurate or unsupported, he/she could object to it. Sometimes, the trustee negotiates with the creditor to reach a settlement or agreement.

By ensuring that all claims are legitimate, the trustee helps to ensure that the bankruptcy estate is distributed fairly among creditors.

Who Must File a Proof of Claim?

Anyone wishing to make a payment claim from the debtor's estate in a bankruptcy case must file a proof of claim form. Individuals include, but are not limited to, creditors like banks, credit card companies, landlords, and medical providers. The only exception to this rule is the government, which is not required to file a proof of claim form but could be entitled to payment in some cases. Failure to file a proof of claim form could result in the creditor being unable to collect any payment from the debtor's estate.

Let us look at parties that could file a proof of claim in each bankruptcy chapter.

     a) Chapter 7 Cases

In a Chapter 7 bankruptcy case, creditors typically do not have access to the debtor's assets. They, therefore, must rely on the bankruptcy trustee to distribute any funds available in the debtor's estate to pay off their claims.

Creditors must file a proof of claim form with the bankruptcy court to be considered for payment. The bankruptcy trustee will then review the claims and determine which ones are allowed and which are disallowed. The trustee will also determine the priority of the claims and pay them accordingly. The bankruptcy trustee will pay creditors with allowed claims a pro-rata share of any funds available in the debtor's estate, which could be limited or non-existent in many cases.

Note: Certain types of debts, like taxes and domestic support obligations, could have priority over other claims and could be paid in full before other creditors receive any payment.

     b) Chapter 13 Cases

Creditors can access the debtor's assets through the debtor's repayment plan in Chapter 13 bankruptcy  cases. The repayment plan is court-approved and requires the debtor to make payments to the bankruptcy trustee for 3 to 5 years. The bankruptcy trustee will use these funds to repay the debtor's creditors.

Creditors must file a proof of claim form with the bankruptcy court to be considered for payment. The bankruptcy trustee will then review the claims, determine allowable claims, prioritize them, and make payments accordingly. The trustee will pay creditors with allowed claims according to the debtor's repayment plan based on the debtor's disposable income and other factors.

Unlike Chapter 7, in Chapter 13, creditors are more likely to recover a portion of their claim, depending on the debtor's ability to pay and the priority of the claim.

     c) Chapter 12 Cases

Creditors can also file a proof of claim form in Chapter 12 bankruptcy cases. The proof of claim form must be filed within the deadline set by the bankruptcy court, typically around 70 days after the first date set for the meeting of creditors. The bankruptcy trustee will review the claim and determine the amount the creditor is entitled to receive from the debtor's assets. A creditor must file a proof of claim form within the deadline to be able to receive payment from the bankruptcy estate.

Federal Rules of Bankruptcy Procedure 3002

FRBP 3002 is a section of the Federal Rules of Bankruptcy Procedure that outlines the requirements for filing a proof of claim in a bankruptcy case. This section of the rules provides information on the timing of filing, the form and content of the proof of claim, and the consequences of failing to file a proof of claim.

Specifically, FRBP 3002 states that individuals should file a proof of claim form within 90 days after the first date set for the meeting of creditors. Additionally, the form must include the amount of the claim, the nature of the claim, and any supporting documentation. It also states that a claim could be disallowed if interested parties fail to file it on time or the creditor fails to provide the required information.

FRBP 3002 also includes provisions for objections to claims and the process for resolving disputes regarding the validity or amount of a claim.

The Proof of Claim Process Involving Secured Creditors With Liens

Secured creditors have a lien on the debtor's property, like a mortgage or car loan. In a bankruptcy case, these creditors must still file a proof of claim form with the bankruptcy court, but the lien on the property allows them to have a higher priority for payment.

In a Chapter 7 case, if the debtor chooses to surrender the property, the secured creditor can foreclose or repossess the property and use the proceeds to pay off the debt. In a Chapter 13 case, the debtor can keep the property and continue making payments on the loan, but the debtor must also pay the secured creditor through the repayment plan.

If a secured creditor has a lien on the property, the lien must be paid off before the debtor can retain it. If the debtor does not have the funds to pay off the lien, he/she will have to surrender the property. If the debtor wants to keep the property, he/she must pay the lien in full. The debtor can also propose a cramdown in their Chapter 13 plan where the property's value is less than the amount of the secured claim. The debtor will then pay the lender the property's value and not the total amount of the claim.

Note: Secured creditors also file a proof of claim in Chapter 12 bankruptcy proceedings.

In summary, secured creditors with liens must still file a proof of claim form, but their priority for payment is higher than that of unsecured creditors. They can foreclose or repossess the property if the debtor chooses to surrender it, or they can be paid through the debtor's repayment plan if the debtor decides to keep the property.

What Happens When a Secured Creditor Fails to File a Proof of Claim Form?

If a secured creditor does not file a proof of claim form, they could still have a valid lien on the property. However, they will not be included in the distribution of assets in the bankruptcy case. It means that they will not receive payment from the bankruptcy estate for the debt they are owed.

However, they could still collect their debt by foreclosing on the property or repossessing the collateral. Additionally, if the debtor chooses to keep the property and continue making payments, the secured creditor will retain their lien and continue to have a right to the property.

Secured creditors need to file a proof of claim form to ensure they are included in the distribution of assets and to protect their rights to the collateral.

What Creditors Must Include in the Proof of Claim Form

When filing a proof of claim form in bankruptcy, a creditor must include specific information and documentation. The information includes:

  • The amount of the claim — It is inclusive of the total amount owed and any interest, fees, or penalties that have accumulated. This information is crucial for the bankruptcy trustee to determine how much the bankruptcy estate should pay the creditor. If the proof of claim form does not accurately reflect the amount owed, the creditor could receive less than what they are entitled to, or their claim could be disallowed altogether.
  • The basis for the claim — It is inclusive of the type of debt and the reason for the debt, for example, a loan, credit card, or medical bill.
  • Supporting documentation — When a creditor files a proof of claim form in bankruptcy, he/she must provide supporting documentation to back up their claim. The documentation includes any contracts, invoices, or other records that show the debt owed. The creditor must also provide evidence that the debt is legally valid and enforceable, for example, a copy of the original loan agreement or promissory note.
  • Proof of any liens — The proof of liens must demonstrate that the creditor has a legally valid interest in the debtor's property, like a mortgage, security agreement, or judgment lien. This information is necessary for the bankruptcy trustee to determine the priority of the claims. Further, the information also helps determine whether the lien is valid and enforceable in the bankruptcy case. The proof of lien must be accompanied by supporting documents, including the original lien agreement, the security agreement, or a copy of the judgment.
  • Priority status — If the debt is considered a priority debt, for example, taxes or support obligations, the creditor must indicate this on the form.
  • Contact information — The creditor must provide their name, address, and contact information so the bankruptcy trustee can contact them if needed.

Note: Creditors must also submit the proof of claim form to the appropriate court and any other required documentation the court could need.

Informal Proof of Claim

An informal proof of claim is a way for a creditor to file a claim in a bankruptcy case without using the official proof of claim form. The creditor simply sends a letter to the bankruptcy trustee with the information required in the official proof of claim form.

Unsecured creditors with small claims typically use informal proofs of claim. However, the bankruptcy court could reject an informal proof of claim if the information provided is incomplete or inaccurate. Creditors need to review the bankruptcy court's local rules and procedures for filing an informal proof of claim to ensure that their claim is properly filed and considered.

What Must the Creditor Include With the Informal Proof of Claim Form in Bankruptcy?

With an informal proof of claim form, the creditor must include the following information:

  • The creditor's name and address.
  • The name of the debtor and the debtor's bankruptcy case number.
  • The amount of the debt and the basis for the claim, such as a contract or loan agreement.
  • Any supporting documentation, such as copies of bills or invoices.
  • A statement of whether the claim is secured, unsecured, or a priority.
  • Any information about any co-signers or guarantors.
  • A mention of whether the claim is contingent, disputed, or unliquidated.
  • An account of whether the claim is based on a judgment or a lien.

Deadline to File a Proof of Claim Form in Bankruptcy Chapters 7, 12, and 13

The deadline to file a proof of claim form in a bankruptcy case can vary depending on the chapter of bankruptcy a debtor files.

In Chapter 7 bankruptcy, the deadline to file a proof of claim form is typically around 90 days after the first date set for the meeting of creditors. In Chapter 12 and Chapter 13 bankruptcy, the deadline to file a proof of claim form is typically around 70 days after the first date set for the meeting of creditors. If the deadline is missed, the creditor risks not receiving payment from the bankruptcy estate.

Challenging a Bankruptcy Proof of Claim Form

Objecting to a proof of claim in bankruptcy can occur when a debtor or the trustee disputes the validity or accuracy of the creditor's claim. The debtor or trustee could file an objection to the proof of claim to having the claim denied or reduced. Some reasons for objecting to a proof of claim include:

  • The claim is not a valid debt.
  • The claim is for an amount higher than what is owed.
  • The claim is for an obligation dischargeable in bankruptcy.
  • The claim is for a debt secured by collateral and which is not earmarked for surrender to the creditor.
  • The claim is for an obligation subject to set off or counterclaim.

The creditor will be notified of the objection and allowed to respond or withdraw the claim. The bankruptcy court will decide on the claim's validity and whether or not to allow it. If the claim is allowed, the creditor will be paid according to the priority of the claim and the assets available in the bankruptcy estate.

Who Can Object to a Bankruptcy Claim?

In Chapter 7, 13, or 12 bankruptcy, anyone interested in the case can object to a proof of claim form. This includes the debtor, the trustee, and other creditors. The debtor could object to a proof of claim form if they consider the amount claimed to be incorrect or the claim to be unsecured or otherwise invalid. The trustee could object to a proof of claim form if they believe the claim is invalid or the creditor is not entitled to payment.

Other creditors could object to a proof of claim form if they believe the claim is invalid or is being paid ahead of their claim. The individual or entity must file a written objection with the court and provide notice to the creditor and the bankruptcy trustee to object to a proof of claim.

Find a Reliable San Diego Bankruptcy Lawyer Near Me

If you are facing financial challenges and considering bankruptcy as an option, it is crucial to seek the advice of a qualified and experienced bankruptcy attorney. A bankruptcy attorney can help guide you through the process, including what to do when creditors file a proof of claim. Do not hesitate to contact the San Diego Bankruptcy Attorney for a consultation to discuss your case and bankruptcy options. Contact our experienced team today at 619-488-6168 and let us assess your case and determine the best approach for your situation.