The requirements governing the filing of a proof of claim and its allowance by the Bankruptcy Court are some of the most straightforward sections of the U.S. Bankruptcy Code (Sections 501 and 502). However, mishandling this essential step in the bankruptcy process can severely limit or even negate your chances of receiving a payout. The two most common mistakes made by creditors are (1) not filing in time, and (2) not providing sufficient documentation to support the claim.

When to File

As a general rule, you should file a Proof of Claim as soon as (1) you receive the Notice to Creditors of the bankruptcy filing, or (2) you find out from your debtor or a third party that the debtor has filed bankruptcy.

Chapters 7 & 13: You must file a Proof of Claim within 90 days after the first scheduled creditors meeting -- Rule 3002(c).

Chapter 11: The Court will assign a date (the "General Bar Date") by which the Proof of Claim must be filed -- Rule 3003(c)(3). This date is usually listed on the Notice to Creditors.

Under Chapter 11, creditors are not required to file a Proof of Claim if the debt is listed correctly in the schedule of liabilities prepared by the debtor/Trustee, and if the debt is not listed as "disputed," "contingent" or "unliquidated -- Rule 3003(b)(1). However, many attorneys recommend that unsecured creditors always file a Proof of Claim, just to be on the safe side.

What if you miss the filing date?

If you fail to file a required Proof of Claim by the Bar Date, the burden will fall on you to convince the Court that you had a legitimate reason for missing the deadline. In most cases, the Court makes this difficult. Ignorance of the law is usually not considered an adequate excuse. And the argument that you never received the bankruptcy Notice is generally not considered a legitimate reason for late filing either. More and more courts assume that you should have been in regular contact with your debtor about their past due account, and therefore should have found out about the bankruptcy filing in the course of that regular contact.

What to File

The Proof of Claim must conform substantially to the Official Bankruptcy Form. It is often sent with (or printed on the back of) the Notice of Bankruptcy. A sample form (PDF format) with instructions can be found on the web site of The Federal Judiciary.

Make sure to carefully read the instructions provided with the Proof of Claim form. And, very important, be sure to include copies (do not send originals) of all supporting documentation. Otherwise, the Court may find your claim invalid.

Documentation should include:

statement of account
copies of all open invoices and outstanding debits
proof of delivery for each open invoice
statement addressing all disputes and deductions, along with supporting documents
itemization of interest or other additional charges claimed
copies of contracts, purchase orders, promissory notes, etc. (if applicable)

If the supporting documents are very lengthy, a summary of the documents can be attached. If essential supporting documents are not available, you must attach an explanation of why the documents are not available.

Be sure to sign the Proof of Claim form, keep a copy of it and all supporting documents, and send it to the Court by certified mail, return receipt requested. Then, contact the Court to be sure it has been received and filed.

When is a Proof of Claim deemed "Allowed"?

A properly filed Proof of Claim is deemed "allowed" unless a party in interest objects. It is very important that you carefully review any correspondence you receive regarding the bankruptcy to make sure no objections have been filed.

If an objection is filed, you can try to reach a settlement. If no settlement can be reached, the Court will conduct a hearing to determine to what extent the claim should be allowed. Be sure to attend this hearing. If you or your representative fail to appear, the Court will normally sustain the debtor's objection and the claim will either be dismissed or reduced.

Proof of Claim Checklist

When you learn that your customer has filed for bankruptcy:

Determine the "General Bar Date" for the Proof of Claim
Obtain, complete and sign a Proof of Claim form
Attach all supporting documents
Mail the Proof of Claim by certified mail, return receipt requested before the Bar Date
Confirm your claim was received and filed by the Bankruptcy Court
Keep an eye on correspondence to determine if an objection to your claim is filed
If an objection is filed, take appropriate, immediate action

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Disclaimer: This article is not intended to be legal advice and is not a substitute for competent legal advice on the referenced subject.

Information provided by ABC-Amega Inc. Since 1929, providing first party accounts receivable collections outsourcing and third party debt collection for management of your commercial receivables portfolio. For further information on our receivable management services, email info@abc-amega.com.