When a business or person receives notice that a bankruptcy case has been filed by a person or entity who owes them money, they generally have serious concerns about how they will be paid. In general, to be paid a distribution from a bankruptcy case the creditor will need to file a proof of claim. But what does that mean?
The word “claim” is defined in the Bankruptcy Code and means any
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.”
Essentially, if you can possibly at some point in time file a lawsuit against the debtor and recover a money judgment, then you have a claim, and you should likely file a proof of claim.
The Bankruptcy Code broadly defines claims to require creditors to appear and have all disputes with the debtor resolved in a single forum--the bankruptcy court. Creditors are required to file their claims with the bankruptcy court by a deadline, called the bar date. Certain claims are entitled to priority. For instance, most people understand that bankruptcy professionals are among the first to be paid out of the proceeds of the estate. However, in individual cases, Congress made “domestic support obligations” (i.e., child support, spousal support and alimony) the first-priority claim. Other priority claims include rights to replevin of goods, wages, taxes, work-related termination claims, and certain other claims. It is very important that a creditor claim the highest priority possible as in some bankruptcy cases unsecured creditors receive a fraction of their claim.
Claims may be objected to by a trustee, a debtor-in-possession or even other creditors. Once an objection to a proof of claim is made, the creditor will be required to prove the basis of its claim.
Our bankruptcy attorneys routinely handle proofs of claim and claim objection proceedings for creditors and other parties.