Bankruptcy is a legal proceeding that allows a person or business in debt to eliminate their debts or find an affordable way to pay their creditors. Filing for bankruptcy grants you an automatic stay, preventing creditors from threatening or demanding payment. However, after the bankruptcy, some of your creditors will receive a notice that they are eligible to receive compensation for the money you owe them.
Creditors file a proof of claim with the bankruptcy court to show they have a legal right to pay. The creditors you indicate in your bankruptcy forms will receive a notice of their deadline to file a proof of claim. Generally, they’d go to the Court’s website and locate a blank proof of claim form, which must be filled out and attached to other documents showing what you owe them before filing for bankruptcy.
This lets the creditor be part of the repayment plan or get paid after the assets are sold. Whether you are a creditor filing a claim form or a person filing for bankruptcy, you will need the help of a skilled bankruptcy attorney to protect your interests during the proceedings.
Who Files a Proof of Claim?
When you file for bankruptcy in California, you must list all the people you owe money. This will include describing the debt you owe to the specific creditors. All creditors included in your bankruptcy forms will receive notice of your bankruptcy case, giving them a deadline for filing a proof of claim. The proof of claim allows creditors to potentially recover what you owe through property liquidation or your repayment plan.
Primarily, the creditors must file the proof of claim. However, a debtor can still file the document to ensure that a specific creditor receives payment from the bankruptcy. For example, if you file for chapter 13 bankruptcy to avoid losing your home and catch up on mortgage payments, you must ensure that the mortgage lender is one of the creditors to be placed in your repayment plan.
If the mortgage lender doesn't file a proof of claim, you can get the necessary paperwork and file the claim yourself. Most creditors may fail to fill out the proof of claim form when:
- The creditor does not receive notice of your bankruptcy.
- You file a no-asset bankruptcy.
- The debt you owe is minimal.
It would be in your best interests to file a proof of claim for your creditors under the following circumstances:
You Have Non-Dischargeable Debt
You cannot eliminate a non-dischargeable debt by filing for bankruptcy in California. Some debts, like alimony, child support, student loans, and taxes, must be paid even when you declare bankruptcy. Failure to pay these debts will result in wage garnishment or other unfavorable recovery measures.
You can avoid carrying the debts forward by filing the proof of claim for the creditor, which allows the debts to be covered in the repayment plan.
You Have Secured Debts
A secured debt is a loan where you use the property as collateral. One of the reasons people file for bankruptcy is to catch up on mortgage payments, car loans, and other secured debts. If a lender does not file a proof of claim, they will not be paid in the bankruptcy.
In this case, you will be responsible for the debts after the repayment plan ends. This can put you in more financial trouble.
Information Included in a Proof of Claim
A proof of claim document will be sent to the creditors you list when filing for bankruptcy. The creditors can download the proof of claim form from the U.S. Courts Bankruptcy Forms Page and fill out the following information:
- The debtor's name, together with the bankruptcy case number.
- The mailing address of the creditor.
- The amount of money owed as of the petition date.
- Basis of the claim. This could include details of goods purchased or services provided.
- The claim types. Whether the debt owned is secured or unsecured should be indicated on the claim form.
After filling out the proof of claim with the necessary information, the creditor must attach documents like a contract or proof of the claim. Sometimes, the court can allow a creditor to file an informal proof of claim for bankruptcy if they meet these requirements:
- The claim is in writing.
- The claim includes a demand against a bankrupt estate.
- The claim is filed with the bankruptcy court.
- Accepting the claim is fair, given the circumstances.
What Happens When a Creditor Is Unsure of the Amount of a Bankruptcy Claim?
When filing a proof of claim, it's essential to know how much is owed so that the creditor's right to be paid back can be asserted. When figuring out how much the debtor owes, a creditor must use the date the bankruptcy petition was filed as the end date. Therefore, interest is meant to accumulate when the payment is delayed. The period between filing and granting a bankruptcy petition does not count.
However, not all claim situations are similar. Calculating the claim amount is challenging if each party's contract governs the legal relationship between the debtor and the creditor. Creditors can amend the proof of claim form as much as they want, depending on the circumstances.
For example, if a creditor finds out after filing the first proof of claim that you owe more debts, the court lets them amend the document. To change the claim form, download a blank Form 401 and make the necessary changes. Another reason for the change is to fix any mistakes that might have been made when the claim was first filed.
Proof of Claim for Secured Creditors
Like other creditors, a car or mortgage lender must file Form 410 for a chance at the payment for their debts. However, when the lender fails to file the proof of claim, they will retain their lien rights, allowing them to repossess the property when they cannot pay the loan.
To protect your assets in bankruptcy, you must know if a creditor has put a lien on your property. If the lender is not paid in bankruptcy, you must pay the balance on your loans after the repayment plan ends. Failure to do this can result in the loss of your property.
Timeline for Submitting a Bankruptcy Proof of Claim in California
When creditors receive a blank proof of claim form, the notice will indicate how and when the proof of claim must be filed. The creditors are then expected to review the notice for submission details. Proof of claim must be filed in the court where you file your bankruptcy case, referencing the case number.
If a debtor has a claim agent, the creditors must file the proof of claim through the agent. Having a claim agent helps assess the claims to ensure they are correct. Proof of a claim can be presented physically to the court or electronically. Submitting a bankruptcy claim electronically is easy and convenient for most creditors.
A creditor can fill out the proof of claim form and upload supporting documents by logging into the bankruptcy website. A notice to file a proof of claim comes with a bar date. The bar date is the latest date a creditor must have filled out and submitted Form 401. The deadline for filing a proof of claim for chapter 7, 11, and 13 bankruptcies is 70 days after filing a bankruptcy petition.
The court allows up to 180 days for government creditors to file the claim. The court does not allow an extension to file the proof of claim. However, if the creditor fails to file within the deadline, they can convince the court that they have a legitimate reason for the late filing. Some considerations the court evaluates to determine whether a creditor's excuse is valid include:
- The effect of allowing the late claim on the debtor.
- The length of the delay in filing and how it affects the legal bankruptcy process. When a creditor files a proof of claim after a repayment plan has been made or the proceeds of property liquidation have been distributed, the court will not accept the claim.
- The exact reason for the delay. The court will determine whether a creditor's delay in filing the claim form was reasonable based on the excuses provided.
- Whether or not the creditor acted in good faith.
Objection to a Proof of Bankruptcy Claim
The information a creditor gives in the proof of claim will determine how the money from the sale of your assets is used to pay off your debts. Additionally, it can affect the nature of your bankruptcy repayment plan. While bankruptcy allows you a fresh financial start, some creditors may take advantage of the situation to recover more than you owe them.
For this reason, it is possible for a person declaring bankruptcy to object to the proof of claim. If you file for bankruptcy under Chapter 7, the bankruptcy trustee can file the objection. However, if they unjustifiably fail to do so, you can do it. Some reasons you could have a valid objection to the proof of claim include the following:
Incorrect Claim Amount
A creditor should legally fill out the proof of claim form with the correct information about how much you owe them. Additionally, the creditor will need to break down how they came up with the total amount to which they are entitled. Since the proof of claim document is a notification to you and the court, you can review it. You can file an objection if the amount the creditor indicates is incorrect.
Wrong Classification Of Debts
In bankruptcy, debts are classified according to priority. When compared to unsecured debts, the treatment of collateral-secured debts differs significantly. If you file for chapter 7 bankruptcy, the secured creditors will receive payment first, and the rest is divided among unsecured creditors. While attempting to recover their debts first, a creditor can wrongly classify their debt.
Lack of Supporting Documentation
Creditors must show more than just how much you owe them. They must also show proof of their claim and the type of debt they owe. Documents like purchase orders, invoices, promissory notes, contracts, and mortgages should also be attached to the creditor's claim. If the creditor didn't include these papers with their proof of claim, you might have a reason to dispute the claim.
The Claim Serves to Harass You
When you file for bankruptcy, and the court puts the automatic stay in place, your creditors should stop adding interest to your loans or debts. Some creditors take advantage of the fact that you are filing for bankruptcy to impose unfair fees and interest rates meant to bother you and make money from the process.
If you look at the proof of claim form and find that the creditor took extreme steps, you may have a good reason to object. Objecting to the proof of claim includes the following steps:
- Obtain a hearing date.
- Fill out the required forms.
- Explain why you believe the proof of claim is wrong and attach the necessary documentation.
- File an objection with the bankruptcy court.
- Serve the objection to the affected creditor.
Find a Competent Bankruptcy Attorney Near Me
When you file for bankruptcy, most of your creditors may still receive payment for a portion of the total amount you owe them. This could be done through a repayment plan in chapter 13 bankruptcy or with the money from selling assets in chapter 7 bankruptcy. However, repayment of creditors is not automatic. The creditors must fill out and file a proof of claim form.
This form lets everyone involved in the bankruptcy know that the creditors want their money back. Secured and unsecured creditors must file proofs of claim to collect what you owe them. However, there is a priority on how the bankruptcy trustee will pay the creditors.
If a creditor makes a wrong claim or provides inaccurate information on the proof of claim form, you can object to the proof of claim. Navigating the bankruptcy process in Sacramento, CA, while dealing with claims from creditors, can be complicated. At Sacramento Bankruptcy Lawyer, we will offer the guidance and representation you need to protect yourself in bankruptcy. Contact us at 916-800-7690 and allow us to guide you through the bankruptcy case.
