Creditors’ Rights: Mistakes to Avoid When Preparing a Proof of Claim

When a customer files for bankruptcy, filing a proof of claim can be a critical step for protecting creditors’ rights going forward. Creditors must ensure that they file their proof of claim forms properly, as failing to do so can result in the loss of available protections. With this in mind, it is best to hire an experienced Miami creditors’ rights attorney who can provide advice and representation throughout the process.

While filing for bankruptcy affords significant protections to struggling companies, creditors are entitled to certain protections during the bankruptcy process as well. In many cases, securing these protections starts with filing a proof of claim. In this scenario, creditors must ensure they do what is necessary to preserve their options, as both substantive and technical shortcomings can lead to adverse consequences.

When Do Creditors Need to File a Proof of Claim After Receiving Notice of a Bankruptcy?

As a general rule, creditors must file a proof of claim after receiving notice of a customer’s bankruptcy filing. Once a debtor files for bankruptcy, the court will establish a filing deadline, and creditors must file by the deadline in order to preserve their right to participate in the bankruptcy process.

The only circumstance in which a creditor would not need to file a proof of claim is when: (i) the creditor’s claim is accurately reflected on the schedules included with the customer’s Chapter 7 or Chapter 11 bankruptcy petition; and (ii) the claim is not listed as disputed, contingent, or unliquidated. But even in this scenario, filing a proof of claim is still an option—and it may be prudent to help avoid unnecessary issues going forward.

How Do Creditors File a Proof of Claim?

Creditors must generally file their proof of claim using the form (Official Form 410) available from the U.S. Bankruptcy Court. When completing the proof of claim form, creditors must include all pertinent information—including the value of their claim, unless their claim is contingent or unliquidated. If a creditor’s claim is contingent or unliquidated, the creditor must also include an explanation of the nature of the claim.

Along with the proof of claim form itself, creditors must also file appropriate supporting documentation. In most cases, this will include the customer’s contract, unpaid invoices, and/or other documentation of the customer’s payment obligation and non-payment. Including adequate supporting documentation is essential, and creditors will want to work with their counsel to ensure they submit sufficient documentation to mitigate their risk of issues later in the process.

What Mistakes Do Creditors Need to Avoid When Filing a Proof of Claim?

When required, filing a proof of claim is an essential step for protecting creditors’ rights during the bankruptcy process. Creditors that need to file a proof of claim also need to avoid mistakes that could lead to the loss of their rights (as well as other potential complications). Some examples of key mistakes to avoid include:

• Failing to File a Proof of Claim – If a creditor is required to file a proof of claim and fails to do so, this failure will result in loss of the creditor’s ability to protect its claim during the customer’s bankruptcy.
• Failing to File on Time – Failing to file a proof of claim by the court’s established deadline can have the same consequences as failing to file at all.
• Omitting Required Information – Omitting required information from a creditor’s proof of claim can also potentially lead to rejection. At the very least, it can lead to complications (and costs) that could have been avoided.
• Omitting Substantiating Documentation – Likewise, omitting necessary substantiating documentation can impair creditors’ ability to protect their claims during the bankruptcy process.
• Failing to Anticipate Objections – Chapter 7 and Chapter 11 debtors may be able to object to creditors’ claims on various grounds. Failing to anticipate a debtor’s objections can also lead to complications that could (and should) have been avoided.
• Overlooking Other Potential Risks – Filing a proof of claim can potentially give rise to other risks as well. For example, by filing a proof of claim, a creditor submits to the jurisdiction of the bankruptcy court, which means that it could be at risk of facing claims from the debtor.

With these examples of potential issues in mind, creditors should consult with experienced counsel as soon as they learn that they may need to file a proof of claim. An experienced creditors’ rights attorney can provide sound, strategic advice focused on achieving a favorable outcome in light of the circumstances at hand.

FAQs: Filing a Proof of Claim After a Customer Files for Bankruptcy

What is a “proof of claim” in a Chapter 7 or Chapter 11 business bankruptcy case?

A “proof of claim” is a formal filing that preserves a creditor’s rights during the bankruptcy process. Creditors must file a proof of claim in most (but not all) cases.

What happens if a creditor doesn’t file a proof of claim?

If a creditor is required to file a proof of claim and fails to do so, it can lose its ability to participate in the bankruptcy process. Depending on the circumstances, this could potentially result in loss of the creditor’s claim altogether.

How can creditors protect their claims during a business bankruptcy?

Creditors can protect their claims during a business bankruptcy by engaging experienced counsel to help them navigate the process. Along with timely filing a proof of claim, creditors may need to take various other steps to preserve their rights as well.

How Edelboim Lieberman Can Help

Edelboim Lieberman provides experienced legal representation for creditors during customers’ bankruptcies in South Florida. Our team of creditors’ rights attorneys has extensive experience helping creditors protect their right to payment; and, since we represent debtors in business bankruptcy proceedings as well, we are intimately familiar with the strategies that creditors may need to overcome to protect their claims during the process.

Contact a Miami Creditors’ Rights Attorney at Edelboim Lieberman

If you would like to speak with a Miami creditors’ rights attorney at Edelboim Lieberman, we invite you to get in touch. Please call 305-768-9909 or contact us online to arrange a complimentary initial consultation.