What if a Creditor Fails to File a Proof of Claim in Chapter 13?

Kansas City Attorney Explains When to File These Claims Yourself

Picture of Bankruptcy Chapter 13 Picture of Bankruptcy Chapter 13When you file Chapter 13 bankruptcy, you must provide a list of your creditors and debts. You can use the Chapter 13 repayment plan to get current with your secured debts (like a house), and your unsecured debts (like credit card debt) will be discharged at the end of the bankruptcy process. However, each of your creditors must file a proof of claim (described below) within a certain time to prove how much you owe. If a creditor fails to do so, then the bankruptcy trustee will not make any payments to that creditor. In some cases, lack of a proof of claim may benefit you. On the other hand, if you owe secured and/or nondischargeable debts, it may be in your best interest to file a proof of claim on your creditor's behalf.

Chapter 13 bankruptcy allows you to stop paying many overwhelming debts and manage the rest of what you owe. However, if your creditors do not file proofs of claim, you could still owe certain debts and be behind on payments at the end of the bankruptcy process. A Chapter 13 bankruptcy attorney can help make sure this does not happen. We can explain when you should file a proof of claim on behalf of creditors and answer other questions you may have throughout your case.

What is a Creditor Proof of Claim?

A proof of claim is a legal document that your creditor must submit to the bankruptcy court. A claim must include documentation proving the exact amount you owe. When you file your petition for Chapter 13, all creditors you list will receive notice that you are filing bankruptcy. Then, they have 90 days to file a proof of claim after the meeting of creditors. The only exception is government bodies, which have 180 days.

If you believe a creditor's proof of claim is incorrect for any reason, you may object to it. The exact procedure for objecting varies, but your Chapter 13 bankruptcy attorney can assist you through the process. Generally, your attorney will file an objection, along with substantiating paperwork, and if the creditor disputes the objection, your attorney will attend a hearing to dispute a claim.

Sometimes, one or more creditors fail to file a proof of claim within the time limit. Your bankruptcy trustee will send a report to you and/or your attorney outlining which creditors have filed proofs of claim and the percentage of their claim that the trustee will pay. These creditors will receive payments through your Chapter 13 repayment plan. Creditors that fail to file a claim will not receive any money. In some cases, this can create problems for you after your bankruptcy is over.

What Should I Do If My Creditor Does Not File a Proof of Claim?

In certain situations, you should file a proof of claim on behalf of your creditor(s) if they miss the deadline. However, depending on the type of debt you owe, you may not have to do anything. Common types of debt you might owe a creditor include:

  • Unsecured debt. This type of debt, which includes credit card bills and medical debt, is usually fully dischargeable in bankruptcy. This means that, regardless of whether your creditor files a proof of claim, these debts will be forgiven at the end of the bankruptcy process. Therefore, you typically do not have to do anything if an unsecured creditor misses the deadline.
  • Secured debt. A secured debt has collateral, such as a house, car or other property. These debts are treated very differently than unsecured debts. If you choose not to pay these debts, you most often will have to surrender the collateral you pledged to secure those debts. Alternatively, you can agree to pay the debts and keep the collateral. However, the secured creditor still must file a proof of claim to be paid. If a secured creditor fails to file proof of claim, then you will not make any payments toward what you owe on your house or car during your repayment plan. At the end of the bankruptcy process, to keep the collateral, you will still owe the full amount of these secured debts. Plus, you may owe interest and other fees. In such cases, it is best to file a proof of claim on behalf of these creditors. This ensures that they get payments from the trustee. This will prevent foreclosure and/or property repossession.
  • Nondischargeable debt. Certain debts are nondischareable in bankruptcy, even though they are not secured. This include certain tax debts, student loans and child/spousal support payments. Like secured debt, it is often best to file a proof of claim for these debts yourself, if your creditor does not. Otherwise, you will still owe these debts once your bankruptcy is complete and may face additional penalties. Also, you may be far better off having the money you pay through the Plan go to these nondischargeable debts instead of other, dischargeable debts.

Concerns About Filing Bankruptcy? Contact Our Chapter 13 Bankruptcy Attorney Today

The benefits of bankruptcy include the ability to get rid of some of your burdensome debt and more effectively manage what remains. However, if a creditor fails to file a proof of claim, you could still face financial difficulties after your discharge. Therefore, it is important to monitor all reports during the bankruptcy process and address any proof of claim issues promptly.

A Kansas City bankruptcy attorney from The Sader Law Firm can guide you throughout the entire process. We can advise you on filing a proof of claim for your creditors and assist in doing so. For more information about Chapter 13 bankruptcy, contact our law firm today for a free initial consultation.