Claim Objections and Claim Prosecutions

Mark Anchor Albert and Associates’ bankruptcy litigators successfully handle claim objections and prosecutions in bankruptcy court.

A creditor who wishes to recover money from a debtor in bankruptcy is required to file a “proof of claim,” which is a written statement describing the reason for and amount of the debt allegedly owed by the debtor to the creditor. A proof of claim is a “written statement setting forth a creditor’s claim” which must conform substantially to the appropriate Official Form. See Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”) 3001(a). Official Form B10 is available on the official websites of most bankruptcy courts. The manner in which creditors and equity security holders present their claims or interests to the bankruptcy court is governed by 11 U.S.C. §§ 501 and 502 and Bankruptcy Rules 3001, 3002, 3003, 3005, 3006, 3007, and 3008.

If a claim is based on a writing, “'the original or a duplicate shall be filed with the proof of claim.” Bankruptcy Rule 3001(c). Pursuant to Rule 3001(c), a creditor asserting a claim based upon a writing has the procedural burden of producing and attaching to the proof of claim the documentary proof to support the claim.

There are different proof of claim rules depending on the respective chapter in which the debtor seeks protection. 11 U.S.C. § 501 and Bankruptcy Rule 3001 generally govern who may file a proof of claim. While creditors typically file proofs of claim against the debtor, section 501 of the Bankruptcy Code permits the trustee, the debtor, or any entity liable to the creditor for the debt owed by the debtor, to file a proof of claim if the creditor does not do so.

A proof of claim must be filed by the time set by the court, pursuant to Bankruptcy Rule 3003(c)(3). The court sets the claim filing deadline based upon a debtor’s motion or the motion of another party in interest, such as a creditor or creditors’ committee. Once that motion is granted and a bar date is set, the debtor or trustee sends a Notice of Bar Date, which is a notice to all creditors and parties in interest of the last day to timely file a proof of claim in accordance with the bar date set by the court.

The filing of a proof of claim triggers the claims allowance and disallowance process, and, accordingly, the bankruptcy court’s core jurisdiction under 28 U.S.C. § 157(b )(2)(B). Thus, a creditor filing a proof of claim typically is deemed to have waived the right to a jury trial by submitting to the bankruptcy court’s core jurisdiction.

A creditor may withdraw a proof of claim as of right, unless (i) an objection to the claim has been filed, (ii) a complaint was filed against the creditor in an adversary proceeding, (iii) the creditor accepted or rejected the plan, or (iv) the creditor otherwise participated significantly in the case, in which case the creditor must have an order of the court to withdraw its claim. See Bankruptcy Rule 3006.

All creditors and other parties in interest generally have standing to object to any proofs of claim filed with the bankruptcy court. In order to contest a proof of claim, Bankruptcy Rule 3007 requires that the objection be in writing, be filed and served on the creditor thirty (30) days prior to the hearing date set for such objection. Claim objections are contested, evidentiary matters which are governed by Bankruptcy Rule 9014. While neither the Bankruptcy Code nor the Bankruptcy Rules provide a bar date or deadline for filing objections to claims, the bankruptcy court typically will set a deadline for the filing of such objections.

Section 502(b) of the Bankruptcy Code lists nine exclusive grounds for disallowance of a claim, which include these common examples:

1. Untimely Claims: 11 U.S.C. § 502(b)(9) disallows untimely claims. In Chapter 11 cases, claims that are not filed timely typically are disallowed, and any creditor who files a late claim is prohibited from participating in the case and receiving any payment with respect to its tardy claim. See Bankruptcy Rule 3003. There is an “excusable neglect” exception to this tardy claim disallowance rule, however. Bankruptcy Rule 9006 (b)(1) allows the court to enlarge the time for filing a proof of claim so long as the claimant establishes that the delay in filing is due to “excusable neglect.”

2. Unenforceable Claims: 11 U.S.C. §502(b)(l) disallows claims against the debtor that would be unenforceable against the debtor under an agreement or applicable law at the time of the bankruptcy petition. This section disallows claims that would not be enforceable if the bankruptcy had not been filed.

3. Insider and Attorney Claims: 11 U.S.C. §502(b)(4) provides that a claim “for services of an insider or attorney for the debtor” shall be disallowed if the claim “exceeds the reasonable value of such services.”

4. Unmatured Interest Claims: 11 U.S.C. § 502(b)(2) disallows the payment of unmatured interest (or post-petition interest) on unsecured claims.

5. Lease Rejection Claims: 11 U.S.C. § 502(b)(6) limits the claim of landlords whose leases are rejected by debtors during bankruptcy proceedings. Section 502(b)(6) compensates a landlord for the loss suffered by termination of a lease, while not permitting large claims for breaches of long-term leases, which would prevent other general unsecured creditors from recovering from the estate. Section 502(b)(6) in effect caps landlord claims after the mitigation of damages by a landlord required under applicable state law.