The Pitfalls of Filing a Proof of Claim

By: Lauren Tow

Many businesses or individuals find themselves in the difficult territory of being a creditor to a company or person who files bankruptcy.  Faced with no longer being able to pursue collections due to the protections that are afforded to a debtor, the creditor must explore its options as allowed under the bankruptcy code.  These creditors may seek repayment for the amounts owed by filing a proof of claim with the bankruptcy court.

A proof of claim is a written statement that provides notice to the bankruptcy court, the debtor, the trustee, and other interested parties that a creditor is attempting to assert its right to receive a payment from the bankruptcy estate. In most Chapter 7 and Chapter 13 bankruptcy cases where there are assets to distribute, creditors must file a proof of claim in order to receive their pro rata share. 

A non-governmental entity’s proof of claim must be filed within ninety (90) days of the trustee’s notice of the case as an asset case.  Each bankruptcy district has its own proof of claim form to file for their district. Common information of what is needed includes, (1) identification of the debtor and the case number, (2) the creditor’s name and mailing address, (3) the amount owed as of the date of the filing of the bankruptcy petition, (4) the basis for the claim, and (5) whether the claim is secured or unsecured. 

While a filed proof of claim is considered prima facie evidence of the validity and amount of the claim, creditors should be aware that a proof of claim can be objected to by a “party in interest”.  A “party in interest” is an individual who has a financial stake in the claim. 

In Chapter 7 bankruptcy matters, objections tend to occur prior to distributions.  In Chapter 11 bankruptcy matters, the plan may include a deadline for objections.  Despite these standard practices, there is no official deadline in the Bankruptcy Code to object to a claim.

In many cases, creditors can wait years to receive any payment in response to their proof of claim.  This puts creditors at risk of facing objections long after the information to rebut has been lost.   As such, creditors should consider in advance potential objections to avoid pitfalls years later.  Common objections include, (1) a creditor failing to attach sufficient documents to prove the debt is owed, (2) the amount of the claim is incorrect, (3) the claim is filed in the wrong bankruptcy case or against the wrong debtor, (4) the claim is filed more than once, (5) the classification of the claim as secured and priority is incorrect, and (6) the claim states improper interest amounts or fees. 

Once an objection is filed, a copy of the objection and notice of hearing will be mailed to the creditor.  If a creditor responds, the Court will consider the objection and determine whether to allow the claim.   Recognizing that you are owed money, and why, is half the battle.  Retaining documentary proof of your claim is your best chance of recovery.