Understanding the Bankruptcy Claims Process

When you have been dealing with huge bills and no way to pay them for a long time, filing for bankruptcy protection can come as an enormous relief, putting an end to the uncertainty of a precarious financial life. For one thing, your paychecks will finally stretch to cover your expenses. In a Chapter 13, your secured debt will be restructured, allowing you to catch up any missed mortgage or car payments. In very rare circumstances, unsecured creditors may also be entitled to receive payment through your Chapter 13 plan. This typically happens when you have too much income, or excess equity in property above state exemption allowances. Keep in mind, an experienced bankruptcy attorney will be able to recognize these rare scenarios, and be able to deal with them effectively before your petition is filed. Nonetheless, it is important to know how these creditors may attempt to collect through the bankruptcy so that you are fully informed about the process.

In order to even have a chance to collect on debts after you file for bankruptcy, creditors will have to file what's known as a proof of claim with the court. After the 341 meeting of the creditors, your creditors have 90 days to file a proof of claim― also known as the claims bar date. Each creditor should be aware of the claims bar date by virtue of receiving formal notice of the bankruptcy. If a creditor is not noticed, their claim is not discharged in the bankruptcy. For this reason, it is extremely important that you inform your attorney of every debt you might possibly owe.  

If a creditor you want to pay fails to file a proof of claim within the 90 days, you may file a proof of claim on his behalf up to 120 days after the 341 meeting. Government agencies are an exception to these time allotments: they have up to 180 days from the 341  meeting of the creditors to file their claims. The claims process should not cause you any worry; just because a creditor submits a proof of claim, that creditor is not necessarily entitled to collect money from the bankruptcy estate. The proof of claim is simply a formal requirement which allows the creditor to be paid if there is a distribution.

In a Chapter 7 bankruptcy, unsecured creditors will only be able to receive a distribution if your case is an asset case. An asset case is one in which your assets hold more equity than state exemption allowances. As stated previously, this is a very rare occurrence and should be recognized and dealt with by your attorney prior to filing your case. If your assets have equity above exemption limitations, your attorney should advise you on the risk of the property being liquidated by the bankruptcy trustee and should advise you of your options under Chapter 13, which allows you to pay out the value of the excess equity over the course of your Chapter 13 plan.

Understanding claims is also important because this knowledge can operate to your benefit. Take the case of priority debts: for example, taxes. A priority debt ordinarily cannot be discharged in a Chapter 13 bankruptcy, but if the relevant taxing authority doesn't file a proof of claim within the allotted time, the debt will become dischargeable. Speak with an experienced bankruptcy attorney today to evaluate your options under Chapter 7 and Chapter 13. With offices in Raleigh, Durham, Fayetteville and Wilson, The Law Offices of John T. Orcutt offer a free initial consultation to North Carolina residents. Call today: +1-833-627-0115