What Is a Proof of Claim in a Bankruptcy Case? | How to to File a Proof of Bankruptcy Claim in New Jersey | Proof of Bankruptcy Claim Examples

Whether you’re a debtor hoping to discharge overwhelming debts or a creditor looking to get paid, a proof of claim is an important part of the bankruptcy process. Filing – or failing to file – a proof of claim can significantly impact what a creditor collects and how a debtor’s case moves forward. Below, we break down what a proof of claim is, why it matters, and how it will affect your bankruptcy case.

What is a Proof of Claim?

A proof of claim is a formal document a creditor files in bankruptcy to show that a debtor owes them money. In short, it is the creditor’s official statement that a debt exists, with evidence to support that statement.

Proofs of claim can be filed in Chapter 7 asset cases, Chapter 13, and Chapter 11 bankruptcy cases. Filing on ensures that a creditor is included in any distributions from the bankruptcy estate. Without it, a creditor may walk away with nothing.

What Must be Included in a Proof of Claim?

A proof of claim serves as notice to the court, trustee, debtor, and other creditors that a debt is owed. For the claim to be valid, the creditor must include evidence supporting the claim. This generally includes:

• Contracts, mortgages, or promissory notes;
• Documentation showing the amount owed;
• Details on accrued interest;
• Information about collateral, if applicable.

If the claim is valid and uncontested, the creditor becomes eligible for a portion of the distributions to be made by the trustee. In a Chapter 7 case, the creditor would receive a portion of any liquidation proceeds. In a Chapter 13 or Chapter 11 case, the creditor would receive a share of the payments made under the debtor’s repayment plan.

When is a Proof of Claim Required?

A proof of claim is generally required whenever a creditor wants to receive any disbursement. In Chapter 7 and Chapter 13 cases, creditors must file a proof of claim within 70 days of the Section 341 Meeting of Creditors. In Chapter 11 cases, creditors generally have to file their proof of claim within 90 days of the 341 Meeting, though the scheduling can vary.

Failing to file a claim in a Chapter 7 or Chapter 13 case means the creditor’s debt may be discharged without the creditor receiving any payment. Filing to file in a Chapter 11 case is slightly different. Creditors do not always need to file a proof of claim. If the debtor has properly scheduled the debt, the debt will be included in the case. Filing a proof of claim is still best practice, especially if the exact amount owed is unclear or disputed.

If a creditor misses the claims bar date, there are still some options for relief. Late filings can be excusable based on the following factors: 

• Prejudice to the debtor;
• Length and delay, and its impact on the case;
• Reason for the delay and whether it was within the creditor’s control;
• Whether the creditor acted in good faith.

See Pioneer Investment v. Brunswick Associates. 

In summary, if filing the claim will not affect the bankruptcy case, and the delay was reasonable under the circumstances, the court will usually allow the claim to be filed.

Objections to Claims

What happens if a creditor files a claim for an amount higher than believed to be accurate? Or for a debt that was paid in full? In these cases, the debtor may file an objection to the claim. An objection to the claim will request the court to either reduce the claim down to the correct amount or “disallow” the claim in full. Disallowing the claim means the claim will not be paid at all through the bankruptcy, but still discharged.

Objections to claims are typically filed because the claim has incorrect information, such as the amount owed or incorrectly identifying collateral. The bankruptcy code specifically calls for the following exclusive grounds for disallowance of a claim: 

• Untimely claims: As discussed above, claims that are not filed prior to the claims deadline are usually disallowed unless they meet very specific circumstances.
• Unenforceable claims: Claims that would be unenforceable against a debtor are claims that could not be enforced outside of the bankruptcy. This includes claims outside the statute of limitations, fraudulent claims, or claims of an unmatured interest. 
• Insider and Attorney claims: If an insider or attorney of the debtor makes a claim that is unreasonable, the claim will be disallowed. This is to prevent a debtor from making payments to a close friend or relative as well as to prevent an attorney from charging unreasonable fees, preventing a creditor from collecting.
• Lease Rejection Claims: This includes claims for damages by landlords with leases that were rejected by the debtor during the bankruptcy. While the landlord is entitled to some compensation for the losses suffered, large claims are generally disallowed for breaches of the lease. The Bankruptcy Code caps the landlord’s claims.

Section 502(b) of the Bankruptcy Code contains these grounds and more for disallowance of a claim. The reading of the statute demonstrates that this list is exhaustive, meaning the listed reasons for disallowance in the statute are the only ones the court will consider in determining to disallow a claim. 

Whether you are a creditor seeking to file a proof of claim, or a debtor seeking to determine the validity of a claim, it is important to have experienced and knowledgeable bankruptcy counsel on your side. Call the Scura team today for a free consultation.