Insolvency proceedings in the United States essentially consist of two major legal actions that must be filed in federal bankruptcy court: Petitions and proofs of claim. The former filings are submitted by debtors, who can be individuals or business entities no longer able to settle their outstanding financial obligations with regard to debts; the latter are filings that must be submitted by creditors who wish to be paid out of the bankruptcy estate established by the court and managed by the the trustee.
Creditors who fail to timely file a proof of claim will basically forfeit their right to distributions from the bankruptcy estate. Not all unsecured creditors that appear on the debtor’s schedule will enter proof of claim, particularly those who feel that the bulk of the original amount has already been paid or that going through the bankruptcy proceeding would not be worth the amount that can be recovered.
Only unsecured creditors such as credit card companies can enter a proof of claim in Chapter 7 or Chapter 13 bankruptcy cases. Lenders who have a lien on collateral assets do not have to follow the proof of claim process, although many attorneys recommend doing so just to be on the safe side.
Completing Form 10
The official form to use in a proof of claim is available from the U.S. Bankruptcy Courts website. Form 10 is an official and straightforward document that asks for the following information from creditors:
- Debtor’s personal or business identification
- Case number
- Creditor’s contact information
- Amount owed to creditor on the date the petition was filed by the debtor
- Type of claim
- Justification for filing the claim
Form 10 must be filed along with all documentation that supports the debtor-creditor relationship and the amount claimed. It is important for creditors to pay close attention to the information they provide on Form 10. Bankruptcy attorneys will take a very close look at the proof of claim in an effort to present an objection that can be sustained in court, thereby relieving their debtor clients from their obligation. Some of the most common mistakes filed by creditors in this regard include:
- Usurious interest
- Excessive penalties
- Harassing statements
- Lack of documents to support the claim
- Incorrect information on the debtor
Deadline for Filing
When the bankruptcy court calls a meeting of creditors, those in attendance are reminded that they have 90 days to file their proofs of claim. Obtaining deadline extensions from the court is possible but highly unusual.