Kentucky Bankruptcy Law

Counsel with Care

Name It, Claim It

Claims play a major role in Chapter 13 bankruptcies. They are essentially superfluous in a “no asset” Chapter 7 so they are often not filed in such cases except for secured creditors. If there are non-exempt assets that will be liquidated in a Chapter 7, then it is an “asset” Chapter 7 and claims serve a similar function as I’ll describe for the Chapter 13.

In a Chapter 13, a plan is proposed by the Debtor that spells out what the Debtor will pay in over time. The plan also describes how various creditors will be treated. Some districts, such as the Eastern District of Kentucky, treat provisions of the plan as motions that become orders of the court once the plan is confirmed (blessed by the court). In such districts the plan provisions can “cram down” or “strip off” liens by secured creditors based on the value of the asset they have a lien against pursuant to 11 U.S.C. Section 506. However, I am venturing a bit off of the topic of claims.

For a creditor to actually receive what is owed to them per the plan, they must file a claim. There is a form available just for this purpose and the creditor can either send it in to the court clerk to be electronically filed or, if they have set up an account, they can electronically file it themselves. The claims for most creditors (other than governmental agencies) must be filed by a deadline specified in the Notice that is sent out to all creditors when a bankruptcy is filed. If they miss the deadline, their claim will likely be denied and the full debt discharged as to the Debtor.

The claim also puts the Debtor on notice of any additional fees and penalties that the creditor may be entitled to receive under the loan contract or by law. It is up to the Debtor to review the claims and object to anything that is erroneous or to excessive fees. It is also good practice to object to secured claims if the plan calls for them to be crammed down or stripped off. The reason to object to claims is because they are presumed to be sufficient proof, on their face, to establish the existence and amount of a debt. This is because there are hefty penalties to filing false claims. In the next post I will give a little more detail as to when it is beneficial to object to a claim.

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June 14, 2013 - Posted by | Bankruptcy, Chapter 13, Chapter 7, Plan payments, Proof of Claim, Secured loan arrears | , , , , , , , ,

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