When a business receives a notice that one of its customers has filed for bankruptcy, the initial response may be “Great, there is the prospect of receiving payment for those unpaid invoices.” Although this may be the end result, the only way to guarantee this result with certainty is if the business does not properly assert its claim against the debtor customer in the Alabama bankruptcy laws proceedings. Fortunately, in many cases, filing a proof of claim in bankruptcy is a straightforward process, and may not even require the help of a lawyer.
Complete the proof of claim
For claims against the debtor that existed before or at the time the debtor filed for bankruptcy, also known as prior claims, creditors should use the general form available, with instructions, on all bankruptcy court websites. This “proof of claim” is the means for a creditor to assert his claims against the debtor in the bankruptcy proceedings (the automatic stay of bankruptcy prohibits creditors from asserting claims against the debtor outside the bankruptcy proceedings. and to exercise control over any of the debtor’s assets). To correctly complete the proof of claim, the creditor must, among other things, identify the amount due before the claim, describe the basis of the claim, indicate whether the claim has priority (such as, for example, a claim based on goods shipped to the debtor within 20 days of filing for bankruptcy) and indicate whether the claim is fully or partially guaranteed. For receivables from the company’s customers, the most common form of security is a right of set-off, which may exist if the company’s customer is entitled to credits against the balance the customer owes the company. (for example, for defective goods, down payments, unpaid guarantees or repairs), in which case the company’s creditor must reflect these compensated rights in the proof of claim in order to avoid waiving them. Finally, the creditor must attach supporting documents, such as unpaid invoices, to the proof of claim. Of course, the creditor must determine whether the supporting documents are confidential or contain sensitive information and, if so, determine whether this information should not be filed publicly with the proof of the claim, but rather made available later in the process. process, if necessary, after a protection order is issued to maintain confidentiality.
Deadline to file proof of claim
The deadline for filing a proof of claim varies from case to case and is set by federal bankruptcy rules. In all cases, creditors will receive a bankruptcy notice which may include the deadline for filing a proof of claim, also known as the deadline. In cases where a proof of claim is not required, the statute of limitations may not be fixed at the time the notice of bankruptcy is sent to creditors. Generally, in a Chapter 7 or Chapter 13 case, a proof of claim must be filed no later than 70 days after the case is filed. In Chapter 11 cases, the statute of limitations may depend on local practice or a court order, and the time limit for filing a proof of claim may vary.
Filing of proof of claim
Although there are certain situations where the filing of a proof of claim is not required to receive distributions from the bankruptcy estate, in the absence of unique jurisdictional considerations, it is recommended that you complete and file a proof of claim in all cases as soon as possible. Not only does the proof of claim give the creditor the opportunity to present the precise amount, nature, basis and priority of the claim, it also provides the debtor with exact contact details for the creditor and allows the creditor to provide specific instructions for remit distributions to the creditor.
Completing and filing the proof of claim form is often something a business can do without the help of legal counsel, but if in doubt, it is best to consult a bankruptcy attorney. Errors in filling out the proof of claim may result in a delay or outright refusal of payment of your claim. Although there is a right to modify a proof of claim, there are limits and the modification should not be invoked to correct errors. In many cases, the proof of claim is filed with the bankruptcy court. However, in significant cases, the debtor may have retained the services of a claims agent to administer the proofs of claim, and the claims officer almost always maintains a separate website with information regarding the bankruptcy, including instructions and specific requirements for properly filing a proof of claim.
After the proof of claim is filed, the business must confirm that it has been received by the court (or claims officer). The company should also monitor the bankruptcy case in the future and remain vigilant in order to be able to respond to any objections filed to the claim.
Objection to proof of claim
Finally, if a proof of claim has been filed, any party to the bankruptcy case can object to it. In almost all cases, it is advisable to hire a lawyer to respond to the objection. Failure to respond will likely result in the claim being dismissed, meaning you will not receive any distribution from the bankruptcy and may waive other important rights. Typical objections include disputes over the amount of debt and a creditor’s failure to attach adequate supporting documents to the proof of claim. Often times, an objection to a claim can be resolved by agreement without the need for a hearing or a bankruptcy court ruling. In situations where a substantial amount is at stake or a material disagreement, a creditor may be required to present evidence, including witnesses, at a hearing and allow the bankruptcy court to resolve the dispute.
Using standardized forms to file a bankruptcy claim is one of the easiest and most cost-effective ways to protect a business’s rights and maximize the chances of obtaining collection from bankrupt customers. Developing internal procedures to ensure the timely completion and filing of proofs of claim is a critical function for credit account managers in any business. To get started, the business should consider using a simple checklist, like the one below.
Proof of Claim Checklist
- What is the deadline for filing complaints (aka the deadline)?
- How much is due?
- Is the claim entitled to priority status?
- What documents exist that establish the debt and are they confidential?
- Where should the complaint be filed?
- Should I consult a lawyer before filing the proof of claim?