What Is A Proof of Claim? Do You Need to Worry About It?
In many Chapter 7 bankruptcy cases, the debtor will have little or no income, and so although there are creditors, those creditors will do little or nothing, as there is no repayment expected. But in cases where there are assets in a Chapter 7, or in a Chapter 13, where repayments are made by the debtor, creditors can expect to get paid.
Proof of Claim
When the debtor files for any kind of bankruptcy, he or she will list all creditors. But just listing the creditors doesn’t entitle them to any repayment. The creditors themselves have to file what is known as a proof of claim. In Chapter 13 cases or Chapter 7 bankruptcy, where it is expected that creditors will get something, they must file what is known as a proof of claim.
The proof of claim informs the court how much the debtor thinks that it is owed. The bankruptcy trustee will use that information to determine how much the creditor gets paid, if anything, from the assets of the bankruptcy estate.
Even secured creditors must file a proof of claim, although failing to do so won’t invalidate a lien (for example, wipe out or nullify a mortgage). All the failure to file the proof of claim will do is take away the creditor’s right to any monetary recovery against the debtor’s estate for any dollar figures that are not secured by the property.
Proof Isn’t Necessarily Proof
The term proof of claim is a bit misleading, because “proof” tends to suggest that the claim being filed is absolute, and that the trustee will accept whatever the creditor says it is owed. This is not the case. Just like creditors do when they foreclose or file credit card lawsuits, many creditors file claims that are invalid or inaccurate.
Maybe the claims are too old to be legally collected, or the amounts the creditor says it is owed are disputed. Debt buyers may have old, outdated information or debts that aren’t properly supported by contractual agreements between the debtor and the original creditor. The debtor may think that the claim has an improper or unjustified amount of interest, late fees or penalties.
Objecting to Proofs of Claim
The debtor has a right to object to a proof of claim. In cases where there is no property to distribute, the debtor may not care about the amount of the proof of claim. But in cases like Chapter 13 bankruptcies, where the debtor’s payments are dictated by how much is validly owed to creditors, a mistake or error in a proof of claim can be the difference between an affordable repayment plan the court will accept, and one that is too expensive for the debtor to pay.