The Journal of The DuPage County Bar Association

Back Issues > Vol. 10 (1997-98)

Filing Proofs of Claim in Bankruptcy
By Michael J. Davis

For a creditor, filing a Proof of Claim in a bankruptcy proceeding is crucial if the creditor desires to be paid. The procedure for filing a proof of claim depends on the chapter of the U.S. Bankruptcy Code (the "Code") under which the bankruptcy case is filed. Failure to file a Proof of Claim may result in the creditor not being paid. As a result, it is crucial to understand the distinctions involved in filing a Proof of Claim under different chapters of the Code.

The most important thing to know about filing a Proof of Claim is exactly what is a claim. A claim is defined by the Code in Section 101(5) as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. Section 101(5)(A). Section 101 also defines a claim as a right to an equitable remedy for breach of performance if such breach gives rise to a right of payment. 11 U.S.C. Section 101(5)(B). Only a creditor can have a claim in a bankruptcy proceeding, and thus, only a creditor can file a Proof of Claim. Creditors are listed on the schedules filed in conjunction with each bankruptcy case, and, in order to be on the schedules, the entity or individual must have a claim.

Being listed on the schedules, and, thus, having a claim, entitles a creditor to rights under the Code. This includes voting in chapter 11 cases, (11 U.S.C. Section 1126(a)), being a member of the creditor’s committee in a chapter 11 case, (11 U.S.C. Section 1102) and the right to any distribution in a bankruptcy case. (11 U.S.C. Section 726, 11 U.S.C. Section 1123, 11 U.S.C. Section 1322).

Each chapter of the Code has different rules as to filing a Proof of Claim. As a result, we will review the need to file a Proof of Claim under Chapter 7, Chapter 11 and Chapter 13. Although there are separate rules for filing under Chapter 9 and Chapter 12, this article does not include these chapters as they are not utilized frequently within the Northern District of Illinois, Eastern Division.

In Chapter 7 cases, an unsecured creditor must file a Proof of Claim. FRBP 3000(a). The Proof of Claim must be filed not later than 90 days after the first date set for the meeting of creditors. FRBP 3002(c). Because most cases are no asset cases, it is not necessary to file a Proof of Claim unless otherwise notified. In the Northern District of Illinois, Eastern Division, a notice is sent out to all creditors at the beginning of the case indicating the date, time and location of the meeting of creditors called pursuant to Section 341A of the Code. This notice contains the following provision which states:

"...at this time there appear to be no assets available from which payment may be made to unsecured creditors. Do not file a Proof of Claim until you receive notice to do so...if at a later date it appears to be there are assets from which a distribution may be paid, the creditors will be notified and given an opportunity to file claims."

As a result, in the Northern District of Illinois, Eastern Division, cases are presumed to be no asset cases unless otherwise indicated. As indicated, when it is established that are assets in the estate, a Notice and Proof of Claim form is sent to each one of the creditors with a filing deadline for the creditor to file their Proof of Claim. The procedure in relation to no assets cases may vary depending on the district in which the bankruptcy case is filed.

The sanctions for not filing a Proof of Claim vary whether the claim is a general unsecured or a priority claim. As to a general unsecured claim, the priorities of distribution of property of the estate established in the Code indicate that allowed unsecured claims which are tardily filed are paid after allowed unsecured claims that are timely filed. 11 U.S.C. Section 726(a)(3). For priority claims (11 U.S.C. Section 507), Proofs of Claim must be filed before the date on which the trustee commences distribution in the case. (11 U.S.C. Section 726(a)(1)).

The only exception to a creditor filing a Proof of Claim late is contained in Section 726. In that section, if a creditor does not have notice or actual knowledge of the case in time to file a Proof of Claim on a timely basis, they will still be permitted to receive a distribution of property of the estate. 11 U.S.C. Section 726(a)(2)(C). However, the Proof of Claim must be filed in time to permit payment from a distribution of the estate. If the assets of the estate have already been distributed, even filing a Proof of Claim would not result in any return to the creditor as a result of having a valid claim.

Even if a creditor does not file a Proof of Claim on a timely basis because of lack of notice or actual knowledge, and fails to file the Proof of Claim prior to distribution, this does not prevent the creditor from pursuing non-dischargeability as to their claim. 11 U.S.C. Section 523(c)(3). However, in a corporate case where there is no discharge, failure to file a Proof of Claim even without notice or actual knowledge, would not result in any distribution to the creditor. 11 U.S.C. Section 727(a)(1).

In Chapter 7 cases, creditors with secured claims don’t have to file a Proof of Claim. 11 U.S.C. Section 506(d)(2). They are, however, secured only to the extent of the value of the underlying collateral. 11 U.S.C. Section 506(a). As a result, if a secured creditor is partially unsecured, they must file a Proof of Claim under Section 726 of the Code in order to be entitled to a distribution from the assets of the estate in a Chapter 7 case if there is a distribution.

The procedure in Chapter 11 cases is different from that in Chapter 7 cases. First, and most important, a creditor does not have to file a Proof of Claim as long as they are listed in the schedules and they are not listed as being a claim that is disputed, unliquidated, or contingent. 11 U.S.C. Section 1111(a), FRBP 3003 (b). A creditor must file, however, if they are listed as disputed, unliquidated, or contingent. FRBP 3003 (c2).

The risk that a creditor runs in not filing a Proof of Claim even if they are listed on the schedules and undisputed, is that they will be allowed in the amount that they are listed on the schedules. Even if this is not correct, they will still be allowed as listed on the schedules. Even worse, if a creditor is disputed as indicated herein, failure to file a Proof of Claim would result in their being barred. In a dispute as to the difference between the amount listed on the schedules and the amount listed on the Proof of Claim, the amount listed on the Proof of Claim will always prevail. FRBP 3003 (c4).

In a Chapter 11 case, there is no time fixed for filing a Proof of Claim. Normally, in Chapter 11 cases, a bar date is set by the court. FRBP 3003 (c). It is necessary for the debtor to give 20 days notice of the bar date for filing their Proof of Claim.

As a result, it is very important for a creditor in a Chapter 11 case to review the schedules. The only way to tell what amount the creditor is listed for is to review the schedules. Because the schedules aren’t mailed out and are only filed at the Bankruptcy Court, establishing the amount that is owed on the schedules is not an easy matter. In addition, the Proof of Claim form that is sent out along with the notice of the filing of the case does not indicate the status of the creditor or amount that the creditor is owed. As a result, in Chapter 11 cases, it is very important for the creditor to review the schedules.

Filing a Proof of Claim in a Chapter 13 case is more crucial than in either a Chapter 7 or Chapter 11 case. First, and most important, an unsecured creditor must file a Proof of Claim in a Chapter 13 case. FRBP 3002 (a). If a Proof of Claim is not filed, the creditor’s right to receive any distribution from the estate is barred. 11 U.S.C. Section 502(b)(9). Furthermore, because of the structure of a Chapter 13 case, the creditor’s claim is not only barred, but also discharged. 11 U.S.C. Section 1328(a).

Because of this rule, the creditor cannot rely on the debtor’s schedules to establish their claim. Therefore, it is crucial to timely file a Proof of Claim in a Chapter 13 case.

As to secured creditors, they need not file a Proof of Claim in order to protect their interests in a Chapter 13 case. 11 U.S.C. Section 506(d). However, the debtor may file on the creditor’s behalf to establish the amount of the claim. 11 U.S.C. Section 501(c). Therefore, it is important for a secured creditor to file a Proof of Claim in order to establish the amount that they are owed according to their own calculations, rather than the debtor’s.

Furthermore, as in a Chapter 7 case, a secured creditor is only secured to the extent of the value of the underlying collateral. As to any amount that they are owed beyond the value of the underlying collateral, they are an unsecured creditor. 11 U.S.C. Section 506(a). As a result, if there is a deficiency beyond the value of the underlying collateral, a secured creditor would be unsecured as to that amount and could be barred and discharged as stated above.

The procedure for filing a Proof of Claim in each case is the same. First, and most important, it must be in writing. FRBP 3001. Furthermore, it must conform to Official Form 10 contained as an appendix to the Code. FRBP 3001. A Proof of Claim may be signed by either the creditor or the creditor’s agent. FRBP 3001(b). If the claim is based on a writing, the writing should accompany it. FRBP 3001(c). If it is a secured claim, proof of the perfection of the security interest must also accompany the Proof of Claim. FRBP 3001(d). Finally, a Proof of Claim form must be filed where the case is pending. FRBP 3002(b), FRBP 5005(a).

As indicated from the above stated Code sections, filing a Proof of Claim can be a very crucial skill for a practitioner to advise their client on. The rules on filing a Proof of Claim involve several intertwining code sections which a practitioner must understand in order to allow their client to receive a distribution in an estate according to the amount that the creditor is entitled to according to the creditor’s records. Understanding the rules of when it is necessary to file a Proof of Claim are important for that purpose.


Michael J. Davis
is a Principal of Davis, Hands & Liss, Oakbrook. His practice is concentrated in Consumer and Corporate Bankruptcy, both Liquidation and Reorganization, and Bankruptcy Litigation. He received his Undergraduate Degree in 1975 from Notre Dame and his Law Degree in 1980 from Vanderbilt.


 
 
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