Bankruptcy Proof of Claim: Don’t Forget!

Bankruptcies Are on the Rise; Remember Your Bankruptcy Proof of Claim

It’s “officially” unofficial, we may be heading into another recession. Think back to 2008 and you’re sure to remember the painful increase in debtor defaults and bankruptcies; virtually no creditor’s AR escaped unscathed. With bankruptcies on the rise, it is increasingly likely you will need to complete a bankruptcy proof of claim either as a secured or unsecured creditor.

The Secured Creditor Ideal

In the event of a debtor’s bankruptcy, you will ideally be a secured creditor who properly filed a mechanic’s lien, bond claim or UCC. Secured transactions are proven to put creditors in the best possible position to get paid, though there are additional securities available such as a Corporate Guarantee or Personal Guarantee.

What is a Bankruptcy Proof of Claim?

A proof of claim is a document filed within the bankruptcy court that alerts the court, debtor, Trustee, and other interested parties that a creditor wishes to register a claim against the assets of the bankruptcy estate. This document is important because it provides proof that the claim is valid and owed, and notifies the Trustee of the creditor’s claim as well as to what class the claim should be associated.

What Information is Included in the Bankruptcy Proof of Claim?

The U.S. Bankruptcy Court’s official form includes fields for various pieces of information such as creditor name and location, the amount of the claim, the basis of the claim, whether the claim is secured, if the claim is based on a lease, and whether the claim is subject to right of setoff.

A Class to Associate the Claim?

Yes, in bankruptcy proceedings, creditors are put into various classes. The bankruptcy code is specific, detailed and, well…it’s long – but here is the basic payout priority:

Payout Priority in Chapter 11 Bankruptcy

  1. Secured Creditors (i.e. creditors who have a perfected security interest)
  2. Administrative Expenses (i.e. costs associated with filing & processing the bankruptcy)
  3. Unsecured Creditors (i.e. creditors without a security interest)

Here’s an example of the class breakdown in the recent bankruptcy plan for Fred’s, Inc.

bankruptcy proof of claim 1

And here’s the Summary of Estimated Recoveries for Claims and Interests:

bankruptcy proof of claim 2

I’ll take this opportunity to point out that secured creditors often fair far better than unsecured creditors. In this bankruptcy, it is estimated that secured creditors will recover 100% of their claims, while unsecured creditors will receive between 4%-8.8% of their claims.

A Bar Date? Like a Date at a Bar?

Bar date and date at a bar are most definitely two different things, though it’s possible they have the same level of fun & excitement. Depending on the bankruptcy, a Bar Date may be set by the court. This date is a deadline by which all creditors must file their proof of claims within the bankruptcy court. It is critical that the proof of claim is filed correctly and timely, whether it’s secured or unsecured, to ensure creditors’ rights are preserved and to maximize any possible distribution.

What You Should Do

When a creditor receives notice that their debtor has filed bankruptcy, the notice should be reviewed to determine if a proof of claim needs to be filed.

  • Be on Time: Too often, creditors miss the bar date to file.
  • Know your Claim: Include all amounts owed for all accounts and affiliates.
  • Secured or Unsecured: Know whether you are a secured creditor and file properly.

Note, a creditor can have a secured & unsecured claim in the same bankruptcy.

Need Help?

Let us prepare, file, and monitor for a recorded proof of claim! For more information on how NCS Credit can assist in filing your bankruptcy proof of claim, contact us today.

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