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What is a Proof of Claim in Bankruptcy?

Bankruptcy can provide the financial relief a person needs, but the process to achieve this outcome is complicated. Bankruptcy law is one of the more technical areas in the legal system, and even sophisticated entities can make mistakes. Much of the complexity comes from the numerous documents that must be filed in a certain order, and the strict guidelines that must be met to keep the case active. Creditors are also required to satisfy certain requirements to present a valid debt claim, and can face the losing the right to collect as well as penalties for violations.

Recently, Citigroup agreed to settle a case against the U.S. Trustee Program for $5 million related to vendors signing off on proofs of claim in bankruptcy cases without knowledge of the contents of the documents. In other words, the vendors could not verify the validity or accuracy of the claim, a basic requirement for almost everything filed with a court. Proofs of claim are an integral part of all bankruptcy cases because they determine which creditor is entitled to payment and in what order each should be paid. A discussion of how proofs of claim fit within a bankruptcy case, and circumstances that can allow a debtor to challenge their inclusion in a bankruptcy case, will follow below.

The Purpose of a Proof of Claim

Trustees appointed by a bankruptcy judge are in charge of administering a bankruptcy petition, meaning they are the individuals who oversee the collection and organization of assets, the management of creditors, and liquidating the bankruptcy estate, if necessary. Most Chapter 7 bankruptcies do not result in liquidation because the assets owned by the debtor are exempt. However, any creditor who wants to be paid, especially those with priority claims, must file a proof of claim within 70 days of the petition filing date. The proof of claim tells the trustee what kind of claim it is, i.e., priority, secured, or non-priority, the basis for the claim, and how much is owed.

Objecting to a Proof of Claim

While proofs of claim are generally accepted as valid, parties with an interest in the outcome of the petition do have the ability to object. Typically, this is limited to the trustee and, sometimes, the debtor. Debtors may need to object if the acceptance of a claim would leave him/her owing more than he/she should or result in the unnecessary loss of assets, usually in connection with a non-dischargeable debt. Objectors to proofs of claim have the burden to show the claim is invalid, and if the creditor demonstrates the claim should be recognized, the objector must then show why the creditor’s argument is wrong. Typical grounds for objecting to a proof of claim include:

  • An incorrect amount;
  • An improper assessment of interest and other penalties;
  • Misclassification of a debt as secured or priority;
  • A claim filed to harass the debtor; or
  • Failure to attach supporting documentation.

Objections must be filed within 30 days of a scheduled hearing, and with notice provided to the trustee, debtor, and creditor, so an opportunity to prepare a response is available.

Speak to an Indiana Bankruptcy Attorney

Bankruptcy is a great option for people in need of financial relief, but getting to the moment of discharge can involve some difficulties. To ensure your petition is approved, talk to Christopher L. Arrington, P.C. about your situation, and see if bankruptcy is right for you. This Avon law firm has the experience you need to successfully complete a bankruptcy case, and move forward with your life. Contact them at (317) 745-4494 to schedule an appointment.

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