Creditors most commonly participate in a consumer bankruptcy case by filing a proof of claim. If properly filed, a proof of claim may allow the creditor to share in the liquidation of the bankruptcy estate (under a Chapter 7 Bankruptcy) or be paid under a proposed plan (under a Chapter 13 Bankruptcy).
What Is a Proof of Claim?
A proof of claim is evidence of the validity and amount of debt owed to the creditor by the debtor (i.e. person who owes a debt). Properly filed claims are presumed to be accurate, meaning that the creditor does not have to actually prove the debtor owes a debt unless someone objects.
Unsecured creditors (i.e. those who do not have a lien on a debtor's property securing the debt owed) will not receive distribution from the bankruptcy estate unless a proper proof of claim has been filed. Proofs of claim must be filed within 90 days of the date when the meeting of creditors is first set.
What Rights Do Creditors Have in Consumer Bankruptcy Cases?
Creditors have the basic right to receive a fair share of your non-exempt assets in a Chapter 7 case and to be treated fairly in Chapter 11, 12, or 13 cases. Secured creditors (i.e. those who have a lien on a debtor's property securing the debt owed) have a right to "adequate assurance" that you will pay the debt, including debts that are past due.
What If a Creditor Asks a Debtor to Reaffirm the Debt?
This means that a creditor is asking a debtor to pay off his debt after it has been discharged in a consumer bankruptcy proceeding. There are several possible reasons why a debtor may want to reaffirm his debt:
- There is a co-signer or guarantor of the debt (such as a family member, friend or employer) that the debtor does not wish to leave stuck with the debt.
- The debtor wishes to avoid having a secured creditor take any collateral (i.e. property acceptable as security for a loan or other obligation) that may have been used to secure the debt.
- A creditor may require a debtor to reaffirm the debt before the creditor will agree to do business with the debtor again.
Do I Need an Attorney?
In cases under all chapters of the Bankruptcy Code, you have to look out for your own interests when it comes to claims by creditors. Creditors may file claims, and it will be up to you to object if you don't think the claims are accurate. A bankruptcy lawyer can help you object to creditors' claims and recommend what chapter of bankruptcy is right for you.