Creditor's rights: Proof of claim necessary to get bankruptcy distribution

Kenneth P. Reynolds is a principal with the law firm Reynolds, Gold & Grosser PC.

Most people assume that when they have been notified that a debtor has filed bankruptcy, they will never see the money that is owed them by the person filing the bankruptcy.

Although this may be the case, many creditors find themselves unable to recover any money when the bankruptcy court does make a distribution to creditors due to their failure to file a proof of claim with the bankruptcy court.

In order to share in the distribution of money from the bankruptcy estate of a debtor, a creditor must file a proof of claim.

Typically, a proof of claim is a one-page document filed with a bankruptcy court setting forth basic information about the creditor and its claim against the debtor.

A proof of claim may, and should be, filed even if the creditor has no judgment against the debtor or if the creditor hasn't even begun collecting on the debt through the court system.

In fact, a proof of claim may be filed even if the exact amount of the claim is unknown at the time of the filing of the claim.

Even if the litigation has commenced or a judgment has been obtained outside the bankruptcy proceeding, however, a proof of claim must still be filed with the bankruptcy court in order for the creditor to receive any distribution.

A proof of claim may be filled out without the assistance of an attorney, and forms may be obtained from the Bankruptcy Court for the Western District of Missouri at its Web site, www.mow.uscourts.gov.

The form is not complicated and can generally be filled out by the creditor without legal assistance.

Supporting documents are typically filed with the poof of claim if the creditor is a secured creditor.

In a Chapter 7 or 13 bankruptcy, the proof of claim must be filed within 90 days after the first date set for the meeting of creditors under Section 341(a) of the Bankruptcy Code.

Although exceptions have been allowed for filing a proof of claim late, failure to file the proof of claim within that time period typically bars the creditor from sharing in any of the proceeds distributed from the bankruptcy estate.

The first date set for the meeting of creditors, which sets the clock running for the Chapter 7 and 13 proof of claims, will be approximately 30 days after the filing of the bankruptcy petition.

Creditors are notified of the meeting of creditors if they are listed in debtor's bankruptcy.

In a Chapter 11 case, the bankruptcy court itself will set the time for filing a proof of claim and has the right to extend the time for an adequate reason. In addition, the time for filing may be set in the Chapter 11 plan itself and will become a separate court order upon confirmation of the plan.

A creditor whose claim is listed in the schedule of liabilities in Chapter 11 and is not listed as a disputed, contingent or unliquidated claim does not have to file a claim in a Chapter 11, although filing a claim is still advisable.

An exception to the common requirements for filing a proof of claim would be a "no asset" bankruptcy.

In a Chapter 7 case, the notice of meeting of creditors in the Western District Bankruptcy Court will indicate that a proof of claim should not be filed if it appears that no assets will be made available to creditors.

In addition, a notice also will be sent out by the bankruptcy court if assets are later gathered by the trustee for distribution. Keep in mind that certain creditors are given priority over others when a distribution is made.

That priority is set out by the code under Section 507.

Unless there is an objection, a proof of claim is deemed allowed.

In summary, if you receive a notice of a bankruptcy filing regarding a debtor that owes you money, do not assume you will receive nothing from the debtor. If you are notified of assets to be distributed by the bankruptcy trustee, take that notice seriously and file your proof of claim promptly.

Failure to do so may result in being barred from sharing in any distribution of money from the bankruptcy estate.