Proof of claim

What Is Proof of Claim?

A proof of claim is a formal document filed in a bankruptcy case by a creditor to formally assert the amount owed by a debtor. It is a crucial component of the broader financial category of bankruptcy and insolvency law, ensuring that creditors can participate in the distribution of the debtor's assets or in a reorganization plan. The official form, typically designated as Form 410, details the basis for the claim and the amount owed as of the bankruptcy filing date.⁴⁶ Filing a proof of claim is generally necessary for a creditor to receive any payment from the bankruptcy estate.⁴⁵

History and Origin

The concept of a proof of claim is deeply rooted in the history of bankruptcy law, which in the United States derives its authority from the Constitution, empowering Congress to establish uniform laws on the subject of bankruptcies.⁴⁴ Bankruptcy laws are designed to provide relief for debtors overwhelmed by financial obligation while also ensuring a fair and equitable distribution of assets to creditors.⁴³,⁴² Over time, the legal framework governing bankruptcy and creditor claims has evolved to create a structured process for handling financial distress. The formal requirement to file a proof of claim became a standard procedural aspect, essential for bringing transparency and order to the often-complex process of resolving debts in insolvency proceedings.⁴¹ The current framework, including rules around proof of claim, is largely shaped by the U.S. Bankruptcy Code.⁴⁰

Key Takeaways

A proof of claim is a formal statement submitted by a creditor in a bankruptcy case, detailing the debt owed to them.³⁹
It is typically required for a creditor to receive payment from the debtor's bankruptcy estate.³⁸
The document must conform to official bankruptcy forms and include supporting documentation.³⁷
Failure to file a timely and proper proof of claim can result in a creditor not receiving any distribution.³⁶
Both the debtor and other parties in interest can object to a proof of claim.³⁵

Interpreting the Proof of Claim

A proof of claim serves as prima facie evidence of the validity and amount of a claim if it is signed and filed in accordance with the rules.³⁴,³³ This means that, unless an objection is filed and successfully sustained, the claim is generally presumed to be correct.³² The information within the proof of claim allows the bankruptcy trustee to understand the nature and extent of the debtor's liabilities and to appropriately distribute available assets or structure a repayment plan.³¹

For a creditor, the proof of claim outlines their right to payment. For the debtor, it clarifies the specific financial obligations being asserted against their estate. Proper interpretation involves reviewing the stated amount, the basis for the claim (e.g., loan, services rendered), whether it is a secured debt or unsecured debt, and any attached documentation to ensure accuracy and legitimacy.³⁰,²⁹

Hypothetical Example

Consider "Alpha Lending," a creditor that extended a $50,000 unsecured loan to "Beta Corporation" before Beta Corporation filed for Chapter 7 bankruptcy. To receive any potential payment from Beta Corporation's liquidation, Alpha Lending must file a proof of claim with the bankruptcy court.

Obtain the Form: Alpha Lending would download the official Proof of Claim form (Form 410) from the U.S. Courts website.²⁸
Fill Out Details: On the form, Alpha Lending would provide Beta Corporation's name and bankruptcy case number. They would list themselves as the creditor, state the amount owed as $50,000, and indicate that the basis for the claim is an unsecured loan.
Attach Documentation: Alpha Lending would attach copies of the loan agreement, payment history, and any other relevant documentation supporting the $50,000 claim.
File: The completed form and attachments would be filed with the bankruptcy court by the designated deadline.
Trustee Review: The bankruptcy trustee overseeing Beta Corporation's case would review Alpha Lending's proof of claim, along with all others, to determine its validity and priority for distribution of Beta's assets. If no valid objection is raised by the trustee or another party, Alpha Lending's claim would be considered allowed.

Practical Applications

Proof of claim forms are a cornerstone of bankruptcy proceedings across various chapters of the Bankruptcy Code. They are routinely used in:

Chapter 7 Liquidation Cases: In Chapter 7, if there are assets available to distribute to creditors (a "no-asset" case typically does not require claims unless assets are later found), creditors must file a proof of claim to receive a share of the proceeds from the sale of the debtor's assets.²⁷
Chapter 13 Reorganization Cases: For individuals seeking to reorganize their debts, creditors must file a proof of claim to be included in the debtor's repayment plan.²⁶
Chapter 11 Reorganization Cases: In Chapter 11, which often involves businesses undergoing reorganization, a proof of claim is filed by creditors to establish their right to payment under a proposed reorganization plan.²⁵
Government Claims: Agencies like the Internal Revenue Service (IRS) also file proofs of claim for outstanding tax debts in bankruptcy cases.²⁴,²³ The IRS provides specific guidance on filing these claims.²²

The U.S. Courts provide the official forms necessary for creditors to file a proof of claim.²¹ Additionally, entities like the IRS provide detailed instructions and systems for submitting these claims, highlighting their regulatory importance.²⁰

Limitations and Criticisms

While essential for the orderly administration of bankruptcy cases, the proof of claim process is not without its limitations and points of criticism. One challenge can arise if a claim lacks sufficient supporting documentation. While a properly filed proof of claim is prima facie evidence of the debt, objections can be raised if the required information, such as the underlying written agreement, is not attached.¹⁹,¹⁸ This can lead to disputes and delays in the claims process.

Another area of contention can be the valuation of collateral in cases involving secured debt. The amount of a secured claim is often capped at the value of the collateral, with any excess becoming an unsecured claim. Creditors must accurately declare both components, as a failure to properly bifurcate a claim can impact their distribution rights.¹⁷,¹⁶ The sheer volume of claims in large bankruptcy cases can also create administrative burdens, leading to scrutiny of filed claims by debtors, trustees, and the courts.¹⁵ The American Bankruptcy Institute often publishes articles discussing various proof of claim issues in bankruptcy proceedings.¹⁴

Proof of Claim vs. Secured Claim

It is important to distinguish between a "proof of claim" and a "secured claim." A proof of claim is the document filed by any creditor (whether secured or unsecured) to formally assert their demand for payment against a debtor's bankruptcy estate.¹³ It is the mechanism by which a creditor communicates the existence and nature of the debt to the court and the bankruptcy trustee.

A secured claim, on the other hand, is a type of claim. It refers to a debt that is backed by specific collateral, giving the creditor a lien on a particular asset of the debtor.¹² If the debtor defaults, the secured creditor typically has the right to repossess or foreclose on that asset. While a secured creditor must file a proof of claim to receive payment from the bankruptcy estate (especially for any unsecured deficiency), their lien on the asset is generally preserved even if they do not file a proof of claim, though it may affect their right to distributions from the estate.¹¹ Conversely, an unsecured claim is a debt not backed by collateral, such as credit card debt or medical bills, and these creditors absolutely must file a proof of claim to receive any distribution.¹⁰

FAQs

Q: Who needs to file a proof of claim?

A: Generally, any creditor who wants to receive a distribution from a debtor's bankruptcy estate must file a proof of claim. This is particularly important for unsecured creditors, as they will not receive payment otherwise. In some "no-asset" Chapter 7 cases, creditors may be instructed not to file unless assets are later discovered.⁹,⁸

Q: What information is required on a proof of claim?

A: A proof of claim typically requires the debtor's name and case number, the creditor's information, the total amount owed as of the bankruptcy filing date, the basis for the claim (e.g., goods sold, loan), and whether the claim is secured or unsecured. Supporting documentation, such as loan agreements or invoices, must also be attached.⁷,⁶

Q: What happens if a creditor does not file a proof of claim?

A: If a creditor fails to file a proof of claim by the court-imposed deadline (known as a "bar date"), they are generally barred from receiving any payment or distribution from the bankruptcy estate, especially in Chapter 7 and Chapter 13 cases.⁵,⁴

Q: Can a debtor or trustee file a proof of claim on behalf of a creditor?

A: Yes, if a creditor fails to file a timely proof of claim, the debtor or the bankruptcy trustee may sometimes file a claim on the creditor's behalf. This is often done to ensure that a particular debt is addressed in the bankruptcy proceedings, especially for secured creditors the debtor wishes to repay.³,²

Q: Can a proof of claim be objected to?

A: Yes, a proof of claim can be objected to by the debtor, the bankruptcy trustee, or another creditor. Common grounds for objection include incorrect amounts, lack of supporting documentation, or if the claim is not legally enforceable. If an objection is filed, the court will hold a hearing to determine the claim's validity.¹