Proofs of claim in bankruptcy

Here at Shenwick & Associates, our clients are both debtors and creditors. When a person or entity files for bankruptcy protection (such as in the recent Sears bankruptcy), we’re often contacted by creditors who are seeking to protect their claim against the debtor. Usually, this requires the filing of a proof of claim. In this post, we’ll examine some of the basics of filing proofs of claim.

1. In the context of a chapter 7 case, claims and proofs of claims are not usually a factor, since most chapter 7 cases are “no asset cases” (there will be no assets for the chapter 7 trustee to distribute from the debtor’s bankruptcy estate after the debtor’s personal property is exempted). However, if the chapter 7 trustee does find assets in the bankruptcy estate (so creditors can have some recovery on their claims), the chapter 7 trustee will file a notice of assets and request to set claims bar date (which will trigger the bankruptcy court to send a notice to all creditors listed in that bankruptcy case, and proofs of claim must be filed by the “bar date”).

2. In the context of a Chapter 11 case, § 1111(a) of the Bankruptcy Code provides that a proof of claim is deemed “filed” for any claim that appears in the schedules except if it is listed as disputed, contingent or unliquidated. Therefore, to know whether to file a proof of claim, an unsecured creditor must examine the debtor’s bankruptcy schedules to determine how their claim was scheduled, i.e., whether it was listed as disputed, contingent (the claim is dependent on another event) or unliquidated (the claim amount is uncertain). Many creditors will just file a proof of claim when they receive notice of a bankruptcy filing.

3. Therefore, unless a creditor’s attorney or a creditor can obtain the schedules by going to court or through PACER, the better practice is to file a proof of claim as soon as possible. The best practice may be to file a notice of appearance and a proof of claim as soon as an attorney is retained to represent a creditor in a chapter 11 case. If an attorney or a creditor does not file a proof of claim early in a case, then they must file the proof of claim on or before the “bar date.” If the proof of claim is not filed by the “bar date,” then that creditor is barred from receiving a distribution in the case, unless the creditor was listed in the debtor's schedules as not having a claim that’s disputed, contingent or unliquidated.  Creditors should review the instructions for preparing a proof of claim.

4. Once the proof of claim is signed, and backup (which will evidence the amount of the claim, such as invoices, a spreadsheet or collateral for the claim if the claim is secured, such as a mortgage) is attached to the proof of claim, the proof of claim should be filed with the bankruptcy court. It can be uploaded to the claims register for the case via ECF (Electronic Case Filing) or sent to the bankruptcy court by Federal Express or another delivery service with a short letter of direction requesting that the clerk file the proof of claim. In cases with many creditors (“megacases”), the bankruptcy court may require that the debtor retain a claims agent to process the proofs of claim instead of the bankruptcy court.

Anyone who has questions regarding the filing of proofs of claims or creditors’ rights in bankruptcy cases should contact Jim Shenwick.