What Is A Creditor’s Proof Of Claim?

In most Chapter 7 bankruptcy cases, creditors can expect to get nothing. However, there are times when there are assets to be distributed in a Chapter 7, and of course, in a Chapter 13 case, creditors may get something through your payment plan (although very little, compared to the full amount owed).

What is a Proof of Claim?

But just because a debtor has assets to distribute, and just because creditors may legally be allowed to get paid, doesn’t mean the debtor actually has to pay the creditors. That’s because creditors have to file what is known as a proof of claim. The proof of claim is the creditors’ way of telling the court “I’m here, and I want my share of whatever the debtor can pay.”

Filing the proof of claim does not automatically entitle the creditor to payment. The bankruptcy trustee can determine that there aren’t enough assets, or that the assets the debtor has, cannot legally be distributed. Additionally, you, the debtor, can challenge a proof of claim made by a creditor.

Challenging the Claims

Obviously, if you have no assets to distribute—that is, if all your property is exempt—there is no point challenging a proof of claim, because the creditor isn’t getting anything anyway. But sometimes, creditors make claims they shouldn’t make, and you will need to challenge their proof of claim.

For example, just as they do in typical debt collection lawsuits, creditors may claim they deserve to be paid, even though the debts are too old to be collected, or amounts are inaccurate, or the creditor doesn’t actually own the debt they are trying to collect upon.

Some may not be supported by proper paperwork (the original agreement between the debtor and the creditor). Other times, the creditor may be adding fees, or interest, that the creditor cannot legally add.

You have a right to challenge the amounts claimed by a creditor, and when you do, it becomes a “case within a case,” that is, your challenge to the creditor’s claim is litigated “inside” of your bankruptcy case.

Why Challenge a Proof of Claim?

Challenging an invalid proof of claim is especially important in a Chapter 13 case, because the amount of overall debt that you have, will impact whether or not the court finds that you make enough money to qualify for a payment plan. The less debt you have, the more likely it is that the judge will approve your payment plan. That means debts that aren’t legally enforceable, should be challenged in a Chapter 13.

If a creditor does not file the proof of claim, and does not do so in the time required, the creditor will lose the right to get paid. However, that doesn’t apply to liens, like mortgages, which remain valid, even if no proof of claim is ever filed.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today to help deal with your creditors in your bankruptcy case.