Proof of Claim: How Creditors Get Paid in Chapter 7 and Chapter 13 Bankruptcy
The Proof that a Creditor Holds a Claim---Sometimes
A "proof of claim" is a standard form that the US Bankruptcy Code requires that creditors that you owe money to file in your Chapter 13 bankruptcy case in order to receive payment from the Chapter 13 Trustee from your Chapter 13 payment plan and in your Chapter 7 case when the Chapter 7 Trustee has managed to liquidate one of your assets or retrieve funds from other sources to be distributed to creditors from the Chapter 7 bankruptcy case (the large minority of Chapter 7 cases). The purpose of the proof of claim is to demonstrate to the Bankruptcy Court that the creditor filing the form is the correct party to receive payment from the Trustee, the amount of the debt, the basis of the debt, and the type or classification of the debt (i.e., secured, unsecured, priority unsecured, and so on). The problems from your perspective as a debtor filing the bankruptcy may arise from a number of different angles with regard to these purposes.
Problems with Proof of Claim Forms
Problems with proofs of claim arise regularly, especially in Chapter 13 bankruptcy cases, where all noticed creditors must file a proof of claim if they want to be paid at all from the Chapter 13 payment plan. (In Chapter 7 bankruptcy, creditors may only file a proof of claim once the Chapter 7 Trustee notifies them that some asset has been liquidated and that funds are available---and the vast majority of Chapter 7 cases do not involve any liquidated asset or payout to creditors.) Every proof of claim must be scrutinized by your bankruptcy attorney as they are filed as one unfortunately regular issue that arises is the disclosure of confidential information such as your Social Security Number or account-number on the publically viewable proof of claim form. Should that occur, it's difficult to stuff the cat back into the bag in this electronic age, but your attorney will want to discover that disclosure immediately so that the damage can be mitigated with the filing of a motion to restrict public access to the form. Other problems that arise pertain to the accuracy of the information included and the documentation attached to the proof of claim, which creditors must include in order to actually prove that they own the claim (credit card statements, recorded mortgage, promissory note, etc.). This is particularly problematic when, as is very common, the debt has been sold or assigned one or multiple times prior to the filing of the proof of claim with the court. The underlying question in that case is, "Does the entity filing the proof of claim form have the legal right to collect this debt, both under the US Bankruptcy Code and Michigan state law?" Frequently, the answer will be "NO." However, some of the Bankruptcy Court's Rules of Procedure make arguing about this difficult.
How to Respond to a Problematic Proof of Claim
If a creditor files a proof of claim in your Chapter 7 bankruptcy case that you have an issue with (other than disclosure of confidential information), you as debtor will generally not have "standing" to object to the proof of claim. This will vary slightly depending upon the decisions rendered by judges in your local jurisdiction, but debtors, generally speaking, do not have the required interest in the issue to object to proofs of claim filed in Chapter 7 bankruptcy cases. That right (or "standing") belongs to the Chapter 7 Trustee, or to another creditor whose payout may be prejudiced by the problematic proof of claim. In a Chapter 13 bankruptcy case, however, you as filing debtor do have standing to object to proofs of claim, along with the Chapter 13 Trustee. (In the Eastern District of Michigan, Chapter 13 Trustees rarely bother to do so.) A good bankruptcy attorney will, in fact, see this as part of the job you've hired him or her to do. If such a claim is filed, your attorney will file with the court an objection to that proof of claim, detailing the issues with the form, and requesting relief from the court of various sorts, notably striking the proof of claim so that the creditor is not paid anything at all. The entity filing the proof of claim needs to receive notice of the objection and will have then an opportunity to respond to the objection, to provide additional information, or fully litigate the issue of the accuracy or veracity of the claim before the bankruptcy judge in your case. This litigation will resemble any civil legal dispute, including even the potential for a hearing or trial with witnesses called, discovery conducted, and evidence produced. Objections to proofs of claim on the basis of a mere insufficiency of documentation attached to the form proving the ownership of the debt are made more difficult than they used to be since rules changes were instituted in 2012 allowing creditors holding claims for "revolving credit" (such as credit cards) to file proof of claim forms with just a 1-page summary page attached. However, the filer still must itself have standing to make the claim under Michigan state law, must still be able to prove that a valid assignment or transfer of the debt occurred. Attorney John Hilla obtained a decision favorable to debtors in 2013 making this requirement clear.
Proof of Claim in Bankruptcy: The Bottom Line
The bottom line with regard to proofs of claim in bankruptcy is that each must be reviewed and inspected thoroughly on a number of different bases. To properly review a proof of claim, however, you must understand what it is you are looking at. For this, you need to hire an experienced bankruptcy attorney to represent you in your Chapter 7 or Chapter 13 case. It will not be a part of the process that a debtor filing a case on his or her own without an experienced lawyer will be able to fully comprehend. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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