Learn how to minimize negative changes to your credit score when consolidating debt.
What is a proof of claim?
When a person files for bankruptcy, if a creditor wants to seek payment from the debtor, he or she must file a proof of claim with the bankruptcy court. This document must include details about the debt as well as any supporting documents to back up the creditor’s claim.
In many bankruptcy cases, none or very few of the person’s creditors will receive any of the money owed to them, particularly in a case under chapter 7 of the bankruptcy code. This is because if a person is in a situation where they have to file bankruptcy, they often have no assets they can sell to pay back their debts. Plus, the bankruptcy court allows them to exempt some of their assets, such as their primary residence.
However, if the trustee decides that if certain assets are not exempt, the person’s creditors can file a proof of claim to seek payment from the debtor. The trustee, who is a person appointed by the court to oversee the bankruptcy case, will sell off the assets and use the money to begin paying some or all of the person’s debts.
A creditor must file a proof of claim to get paid. Without it, the person’s debt will be discharged, meaning the creditor won’t receive payment. All of a person’s creditors that they listed on the bankruptcy petition are notified when the petition is filed, and along with that notification, they get 90 days to file their proof of claim.
If a creditor does not file a proof of claim, the debtor can do it for them. For example, this may occur if a person pay the creditor through the bankruptcy. Such might be the case if the debtor has a mortgage and wants to keep the house and continue paying the mortgage even after filing bankruptcy.
Proof of claim example
If you have assets that can be sold to pay your debts, than anyone you owe can file a proof of claim, seeking payment from money generated by the sale of those assets.
For example, if you owe money on property you’ve been renting, the landlord or property owner may file a proof of claim, seeking all past-due rent or lease payments. If there’s enough money in your estate, some of it might be used to pay them.