Bankruptcy claims are an important part of Chapter 13 bankruptcy (and to a much lesser extent in Chapter 7 bankruptcy), and worth an explanation. Chapter 13 bankruptcies involves payments being made to creditors, via the US Trustee's office. At the beginning of the case, the debtor estimates how much each creditor should be paid. The exact amount, however, is not determined until the creditor files a bankruptcy claim.
A bankruptcy claim is submitted by the creditors to the bankruptcy court using Official Form 410. Upon receiving notice of the case filing, creditors have a deadline to submit the claim (the longer deadline for government agencies is within 6 months of the filing of the case). If the creditor fails to file a claim, the creditor does not get paid. So, if an unsecured credit card does not file a claim on time, they will not receive any distributions from the bankruptcy plan. Failure to file a claim by a creditor will sometimes be a problem for the bankruptcy debtor. If the debtor wants or needs to make a payment through the bankruptcy plan (for instance, to pay arrears on a mortgage) the lack of a filed claim could be a problem. Fortunately, in these situations, the debtor's attorney can file on behalf of the creditor. This is not a frequent occurrence.
Assuming all claims are filed on time, they will determine how much money must be paid into the plan and disbursed. These claims can be reviewed by the debtor's attorney and objected to if they are inaccurate, unsubstantiated, or false. Objections to claims can be the subject of another post, but for now it is worth pointing out that filed claims are not the final say. In fact, the US Trustee can also object to a claim if they believe it will be harmful or unfair to other creditors. Therefore, it is important to review every claim filed.
The most important claims to review are typically claims for mortgages and car payments. They will normally be the largest claims, and they are both "secured" claims, which means they must be paid in full if the property is to be retained and the plan successfully completed. They should also provide interest rates, arrears owed, and total balances. These secured claims should always be reviewed extra closely. If the estimates of secured claims at the beginning of the case are inaccurate, the case will likely need to be amended. It is also important that these claims are accurately accounted for so that the case can be closed properly at the end of the payments.
Another important, and frequent, type of claim is for taxes and municipal liens. These are often not accurately known by my clients at the beginning of the case, and sometimes estimated quite loosely. I closely review these claims (usually filed by local municipalities and the IRS), discussing the amounts claimed with my clients. For one thing, I want to make sure they are accurate. Also, if they are, I need to determine how much the plan payment must be increased to account for the claim. Once again, these claims must be entirely accounted for if the case is to be discharged at the end.
A final important type of claim to discuss is the post-petition claim. These are claims filed for debts incurred after filing. These post-petition claims usually involve unpaid utilities, such as gas service. If the debtor fails to pay these post-petition utilities, the bankruptcy court will allow the lifting of the automatic stay, allowing the utility company to file a claim and be paid through the bankruptcy plan. Therefore, it is important to keep these payments current.
Bankruptcy claims are an important part of the bankruptcy process. My office closely reviews filed claims to determine how they will effect our clients cases. Contact us if you have any questions about bankruptcy claims.