A “claim” is a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. A claim may also be the right to an equitable remedy for breach of performance if the breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. A “debt” is a liability on a claim.
Claims arise for bankruptcy purposes when all transactions or acts necessary for liability occur. For government claims, there must also be some prepetition relationship. It may be contact, exposure, impact, or privity between the United States and the debtor such that the government is able to fairly contemplate that it might have a claim against the debtor. A claim arises regardless of enforcement efforts or of whether the claim is contingent, unliquidated, or unmatured when the petition is filed.
Filing of Claims
The bar date establishes the date by which proofs of claim must be filed against the estate. The bar date is similar to a statute of limitations and must be strictly observed. Filing a proof of claim is analogous to filing a complaint in a civil action for purposes of litigation authority. Creditor agencies may file if the agency has litigation authority or by arrangement with the Department of Justice. Filing is required. The only claims allowed to share in the bankruptcy estate are those for which proofs have been filed. A claim exists whether or not a proof of claim is filed. Filing is required only to permit creditor’s participation in the case.
Allowance of Claims
A properly filed proof of claim is prima facie evidence of the validity and the amount of the claim. Claims scheduled as undisputed, fixed, or liquidated in Chapters 9 and 11 are allowed even if no proof of claim is filed. A “party in interest” may object to the proof of claim. This becomes a “contested matter.” If the objection is joined with a demand for relief of the kind specified in Federal Rules of Bankruptcy Procedure, it becomes an adversary proceeding. Once the objector produces some evidence disputing the validity of a claim, the burden shifts to the claimant. The claimant bears the ultimate burden of establishing a valid claim by a preponderance of the evidence.
Priority Claims
Priority unsecured claims include administrative expenses and several other categories of unsecured claims that receive priority in distribution of estate assets. A “superpriority” may be triggered by a failure of adequate protection for a secured claim or may be authorized as an inducement to provide postpetition financing. Priority claims are paid ahead of general unsecured creditors but may not be paid out of encumbered assets absent secured creditor consent.
Secured Claims
Secured claims are defined as including “liens,” “security,” “security interest,” “security agreement” and “secured claim.” An allowed claim secured by a lien on property in which the estate has an interest, or that is subject to setoff, is a “secured claim” to the extent of the value of the creditor’s interest in the estate’s interest in the property, or the amount subject to setoff. A secured claim carries the right to “adequate protection” of collateral. Unavoided liens survive bankruptcy, but a secured creditor may be required to take action to protect the lien.
If you are interested in finding out more about the bankruptcy process and how best to deal with personal finance generally, contact our office at 718-539-1100 or email us at info@jckimlaw.com.