When a company enters Chapter 11 bankruptcy, the filing has ripple effects that impact nearly every business and individual that has recently engaged in a business relationship with the company. Vendors, suppliers, landlords, business partners, employees, customers and lenders owed money by the company (the "creditors") will receive notice of the company's bankruptcy petition. For those with unpaid bills, wages, and outstanding invoices at the time the company files (the "Petition Date"), efforts to collect on payment are prohibited by a court ordered injunction known as an automatic stay. To avoid further losses and recover as much as possible, creditors must pay close attention to the proceedings and requirements to submit a claim and seek recovery.
The legal term for the company in bankruptcy that owes money is the “Debtor.” The Debtor’s failure to meet its payment obligations or the terms of a contract give rise to a creditor’s legal right to repayment or remedy. Under federal bankruptcy law and procedures, this right is known as a bankruptcy “claim”. One of the first steps a creditor must take upon notice of the Debtor's bankruptcy filing is to determine whether they must file a notice of their claim with the bankruptcy court. This is called a "Proof of Claim."
In this guide, we’ll discuss everything you need to know about filing a Proof of Claim form.
What is a Proof of Claim?
A Proof of Claim is a document that a creditor files with the bankruptcy court to assert their legal right to repayment from the Debtor. It consists of a Proof of Claim Form (Official Form 410) and typically includes additional documentation that describes the nature and circumstances of the claim and supports the creditor's assertion that they are owed a specific amount of money.
Generally, a creditor can expect to receive a blank Proof of Claim form (Official Form 410, sometimes referred to as Official Form B 410), included with a Notice of Bankruptcy, from the clerk of the United States Bankruptcy Court. The form can also be retrieved from the United States Courts’ website. As it can be complex and time consuming to properly calculate your claim and complete the form and related paperwork, it is generally recommended to seek legal counsel to ensure that your Proof of Claim is accurate and submitted on time.
Why is a Proof of Claim Important?
Every creditor's situation is different. Even a Chapter 11 bankruptcy, where the company seeks to reorganize (and not liquidate) the business, can leave creditors with substantial losses that are detrimental to their finances—including their ability to make payroll, stay in business and avoid bankruptcy themselves.
By filing a Proof of Claim with the bankruptcy court, a creditor can ensure that they formally assert their right to repayment, declare the claim amount owed, and substantiate their claim with documented evidence. Without doing so, the court is left to rely on the Debtor’s records of their liabilities which may not be accurate, or inclusive of every claim—thus limiting or eliminating a Creditor’s opportunity for repayment. Furthermore, filing a Proof of Claim allows a Creditor’s voice to be represented in legal proceedings, particularly if there are disagreements or disputes with the Debtor on the specific details of the bankruptcy claim.
Filing a Proof of Claim also provides the Creditor with voting rights on the Debtor’s Plan of Reorganization, and ensures the Creditor is entitled to share in the distribution of any resulting payouts from the Debtor’s bankruptcy estate. Procedurally, the Proof of Claim establishes the creditor's position as to the nature and amount of the claim as a mater of record.
Who Needs to file a Proof of Claim?
Filing a Proof of Claim is not required of every creditor in a chapter 11 bankruptcy case. There are, however, several reasons why it is both important and advantageous for a Creditor to proceed with formally filing a Proof of Claim.
Am I Required to File a Proof of Claim?
14 days after filing a Chapter 11 bankruptcy petition, the Debtor is required to file a Schedule of Assets and Liabilities to the court that includes a list of the parties it owes payment. Included in the Schedules are details declared by the Debtor on the respective categories, status and the claim amount owed at the time of the Debtors’ Ch.11 bankruptcy filing. Upon receipt of the Debtor’s Schedules, a Creditor should thoroughly review this document to ensure that their claim and information is listed accurately.
If a Creditor is satisfied with the status of their bankruptcy claim as listed in the Schedules, it is not required to file a Proof of Claim. However, it is still prudent to do so, together with supplying documented evidence in support of the claim. Filing a Proof of Claim even when not required, allows the Creditor to maintain the right to receive payment from any distributions in the bankruptcy estate for its assigned category (secured, unsecured, priority, or super priority).
To receive payment from the bankruptcy estate, a Creditor must file a Proof of Claim under these scenarios and if any of the following discrepancies arise:
- Creditor is not listed at all on the Debtor’s Schedules
- Creditor’s claim is listed on the Schedules but categorized as a disputed, contingent or unliquidated claim
- Creditor disagrees with the status of their claim and/or the claim amount listed in the Debtor’s Schedules
Failure to file a Proof of Claim under these scenarios allows the Bankruptcy Court to assume that the Debtor’s Schedule of Assets and Liabilities is accurate and considers it as valid evidence in the case. This can end up limiting or nullifying a Creditor’s chances of receiving a payout on their claim. Therefore, it is critical for Creditors under these specific circumstances to file a Proof of Claim properly and expediently.
For Creditors that file a Proof of Claim in spite of being listed on the Debtor’s Schedule, the court treats the filed Proof of Claim as superseding the claim record listed on the Schedules—provided that there is no objection or legal dispute with the Debtor.
How do I file my Proof of Claim?
Proofs of claim may be submitted by mail or electronically.
Submitting a Proof of Claim by Mail
The Notice of Bankruptcy or Notice of Bar Date will include information on how and where a creditor should submit their Proof of Claim. It is up to the creditor or their representatives to carefully review these Notices to obtain these vital submission details. A Proof of Claim must be filed in the specific court in which the Debtor’s bankruptcy case is pending, and properly reference the relevant case number.
Certain cases may require a creditor to submit their Proof of Claim to a third-party bankruptcy claims agent that has been retained by the Debtor and approved by the court to administer and process all claims in the case. Notices from the case will specify the address to which the Proof of Claim documentation should be sent, and if regular mail services or an overnight courier services are accepted. In the majority of cases, it is not permitted to file Proof of Claims documents via fax or email.
In some cases, the court may provide creditors with the option to submit their Proof of Claims electronically. This can be accomplished using the Bankruptcy Court’s official website, or the website of contracted third-party bankruptcy claims agents. Instructions for electronic submission are provided online.
Submitting an Electronic Proof of Claim (ePOC)
By far, the most convenient way to submit a Proof of Claim is to file it electronically on the designated website of the Bankruptcy Court, or its contracted bankruptcy Claims Agent.
A creditor can easily and efficiently submit an electronic Proof of Claim online through the appropriate website for the relevant bankruptcy court for the case. This option does not require a login or password. Supporting documentation may be uploaded and attached to the digital Proof of Claim form.
The contact information and mailing address of the creditor will be automatically added to the court’s system. This allows the creditor’s claim to be submitted properly within the bankruptcy claims priority matrix of the specific case it pertains to, and ensures important case documents can be served to the correct contact and address of the creditor. By filing electronically, a creditor's claim becomes immediately recognized in the bankruptcy case. Creditors can print or save their progress electronically to access the claim later, and can also receive confirmation of their submission.
The process of filing an electronic Proof of Claim includes answering a series of questions to ensure the creditor completes the Proof of Claim accurately.
When do I Need to File My Proof of Claim?
What is a Bar Date?
The last possible date that creditors are allowed to file their Proof of Claim against a Debtor in a bankruptcy case is known as the Bar Date. This is effectively the deadline for creditors to adhere to the bankruptcy claims timeframe through timely submissions of Proof of Claim to be accepted by the court. A creditor will receive the Notice of the Bar Date in the formal Notice of Bankruptcy filing that is issued by the Bankruptcy court. This same Notice will include the Proof of Claim form and instructions for how to properly fill it out and submit it.
Most Proof of Claim forms that are filed after the Bar Date are rejected and not given any consideration by the Court. For this reason, it is advisable to file a Proof of Claim well before the Bar Date so as to not risk the court’s consideration on the validity of the Proof of Claim.
Under very rare circumstances, a creditor that is delinquent in submitting a Proof of Claim prior to the Bar Date, can have their late Proof of Claim reviewed and accepted.
What happens if I miss the Bar Date?
In the event that a creditor fails to file the Proof of Claim form by the Bar Date, the creditor will need to convince the Bankruptcy Court that there is a legitimate reason for filing late and missing the bankruptcy claims timeframe. For creditors who have a good standing relationship with the Debtor, it is possible to request that the Debtor file the Proof of Claim on the creditor’s behalf. However, it will be up to the creditor to prove the reasoning with the court. Ignorance of the law or to use the excuse that the Bankruptcy Notice was never received are insufficient reasons that the court will not accept.
The following is a list of the four considerations that a Court will evaluate in determining whether to excuse a late Proof of Claim filing, according to a Supreme Court decision made in 1993.
- Whether allowing the late bankruptcy claim will prejudice the Debtor;
- The length of delay in filing the bankruptcy claim and resulting potential impact on the judicial proceedings;
- The reason for the delay, including whether the delay was within reasonable control of the Creditor filing the bankruptcy claim; and
- Whether the creditor that filed the late bankruptcy claim acted in good faith
Under extenuating circumstances, there is the possibility for a creditor to file a late Proof of Claim to be accepted by the court. However, the stringent criteria and subsequent dealings with the court to excuse the failure to meet the Bar Date can make it a burdensome process.
How do I File my Proof of Claim?
What information do I need to fill out a Proof of Claim form?
The following is a list of the important details a creditor will need to have ready in order to complete a Proof of Claim form in a bankruptcy case.
- Debtor’s Information: Debtor’s Name and the relevant Bankruptcy Case Number
- Creditor’s Information: Name of contact person, contact information (including phone, email, and mailing address)
- Classification Section of the claim: select either Secured, General Unsecured, or Priority Unsecured
- Amount owed as of the Petition Date
- Basis of the claim (Provide documents to support the claim such as invoices of goods or services purchased, delivery receipts, contracts, loan or credit card balance, legal settlements, etc)
- Attach documentation that shows an itemization of charges to demonstrate the claim amount owed
- Signature of the Creditor or an Authorized Representative
Classification of a Bankruptcy Claim
Secured Claim vs Unsecured Claim
An essential aspect in filing the Proof of Claim is to determine whether a bankruptcy claim falls into one of two classifications: Secured or Unsecured. What is the difference?
Under 11 U.S.C. §506(a), a secured claim is debt that is supported by collateral or a lien on a specific property of the Debtor. The classification of secured claims are given priority in the bankruptcy claims process, meaning they have the right to be paid from the available funds or bankruptcy estate before other Creditor classes are paid out (i.e. unsecured claims). The amount listed in a secured claim typically cannot exceed the value of the collateral or specific property on which a Creditor has a lien. The additional amount owed that exceeds the value of the collateral or property will be treated as an unsecured claim.
Conversely, an unsecured claim is by definition one that does not meet the requirements of a secured claim. Simply put, unsecured claims are debts that are not guaranteed by collateral or a lien on the Debtor’s assets.
Priority Claim vs Non-Priority Claim
For creditors with an unsecured claim, it is also imperative to determine whether their unsecured claim is considered a priority claim or non-priority claim. How can this be determined?
An unsecured priority claim is debt that is entitled to special treatment in the bankruptcy claims process and will get paid ahead of unsecured non-priority claims. A Debtor must pay out a priority claim in full and in cash under the Chapter 11 Plan, unless a creditor agrees to different terms.
As an example, unsecured priority claims may include: employee compensation owed, unpaid contributions to employee benefits plans, tax obligations owed to the government, pending personal injury or workplace injury or death claims, certain deposits given to the Creditor to secure future goods or services, alimony, child support, and costs of administering the bankruptcy case (e.g. professional accounting and legal fees).
If an unsecured claim does not fall under any of the aforementioned categories given special treatment, then it is considered non-priority. The term “general unsecured” is often used interchangeably when describing unsecured non-priority claims.
With the exception of tax claims, all priority claims must be paid when the Chapter 11 Plan is confirmed or soon after. Non-priority claims may be paid out in cash, property or securities of the Debtor under the Plan, and distributions are made after the priority claim payouts are issued.
Providing Supporting Documentation
A Proof of Claim must include any pertinent documentation, such as promissory notes, purchase orders, contracts, invoices, delivery receipts or security agreements. Other documentation might include monthly statements, pay records and ledgers.
The purpose of this additional information is to establish that a relationship exists between the creditor and the Debtor, as well as prove that a debt is in fact owed by the Debtor as of the case petition date. The documentation must also display the amount of the claim that is owed for which the creditor is entitled to payment or equitable remedy, whether the amount is itemized, or listed in total.
What if I’m unsure of the amount of my bankruptcy claim?
Determining the claim amount for the Proof of Claim form is an important step towards ensuring the creditor’s right to repayment is accurately asserted. Using the petition date of the bankruptcy case as the ending point, a creditor can determine the unpaid amount owed by the Debtor prior to this petition date. As a simple example, summing the total of unpaid bills and outstanding invoices (with interest) owed by the Debtor on the petition date would provide the claim amount needed for the Proof of Claim form submission.
But not all bankruptcy claim situations are as simple to determine, especially if a legal relationship between the creditor and Debtor is governed by stipulations in a contract. If a creditor is unsure of the claim amount to submit on a Proof of Claim form, do not worry. The Proof of Claim does not need to specify an exact liquidated amount for a creditor to properly file the form on time. Fortunately, the debt owed can be dependent on a future event, upon which the Proof of Claim can then be subsequently changed to reflect the liquidated, non-contingent amount that is due. While late submissions of Proofs of Claim are likely denied, amendments to Proofs of Claim that were timely filed are granted freely and are not declined on the grounds of timeliness.
Top Mistakes to Avoid When Filing a Proof of Claim
As mentioned above, it is recommended to hire an experienced bankruptcy attorney to best represent your bankruptcy claim and help you file a Proof of Claim accurately, to completion, and in a timely manner. This is especially true for complex claims and when a Creditor is seeking substantial restitution in monetary value. The utmost care and attention to detail should be taken when filling out a Proof of Claim form and submitting it within the bankruptcy claims timeframe. In fact, fraudulent claims are subject to a fine of up to $500,000, imprisonment for up to 5 years, or both.
The most common mistake made is incorrectly confusing the Debtor and creditor fields on the form. The Debtor is the corporation or entity that has filed for Chapter 11 bankruptcy, while the creditor is the person or business entity that is entitled to a payment or equitable remedy arising from events that occurred before the Petition date.
Another common mistake made is entering the wrong case number on the Proof of Claim form. Case numbers are uniquely assigned to each and every specific entity or company that files for bankruptcy. For complex organizations undergoing Chapter 11 bankruptcy that are composed of a parent company and multiple subsidiary entities, there will often be multiple case numbers involved. Under these circumstances, there is a jointly administered “lead case” number and individually distinct case numbers for the co-Debtors. It is incredibly important for a creditor to determine how and where their claim is listed on the Debtor’s Schedules, whether it is with the parent company or a subsidiary, and to file the Proof of Claim form accordingly in relation to the corresponding case number.
It is also critical that the individual completing the Proof of Claim signs and dates the Official Form B410. An original signature is mandatory for Proofs of Claim that are mailed physically. For filing an electronic Proof of Claim, courts are authorized to consider electronic signatures as valid. A creditor’s signature declares under penalty of perjury that the details provided on the Proof of Claim form are true, and accurate to the best of their knowledge and belief.
Finally, only copies of supporting documentation should be included as evidence with the Proof of Claim. If originals are submitted, a creditor will likely not receive them back from the court.
How to Confirm Receipt of my Filed Proof of Claim
Once a Creditor has successfully filed a Proof of Claim, the creditor can confirm that it was received by the Bankruptcy Court by either enclosing a stamped self-addressed envelope and a copy of the completed form, to which the court will return a stamped confirmation in the mail. Alternatively, a creditor can visit the website of the bankruptcy court's PACER system to review the submission.
For Proofs of Claim that were filed electronically, an online confirmation will be provided as receipt.
How do I Amend a Proof of Claim
How to File a Proof of Claim Amendment
A Creditor is not limited in the amount of times they can amend their bankruptcy claim, even if the changes are made subsequent to the Bar Date. If a creditor discovers additional funds that are owed or come to find that a mistake has been made in the original filing, a new Proof of Claim form can be completed and filed.
In order to file a Proof of Claim amendment, simply download a blank Proof of Claim document and fill it out accordingly. Make sure to enter the original bankruptcy claim number into the designated field called “Amendment Claim #” and reference the appropriate bankruptcy case number along with the Debtor Name. Each additional time an amendment is filed on a particular bankruptcy claim, it is required to enter the previous Amendment Claim Number.
Generally, it is recommended to file a Proof of Claim as soon as possible and as often as needed. Do not hesitate to file for an amendment on a bankruptcy claim if a mistake is discovered, or additional claim amounts are owed. The amendment will serve to keep the court records accurate and up to date in the bankruptcy proceedings, especially when rulings are made pertaining to creditor voting rights, and eventual payout distribution.
What Happens Next?
Filing a Proof of Claim is an imperative step in the Chapter 11 bankruptcy claims process. What happens after filing a Proof of Claim form?
For many creditors, the amount that they are owed is incorrectly listed or misclassified on the Debtor’s Schedules, and a Proof of Claim is thus required to accurately assert the right to payment distribution upon case settlement.
After receiving a Notice of Bankruptcy and properly filing a Proof of Claim form before the Bar Date, creditors might wonder what comes next. Unfortunately, the answer is not so simple and the legal proceedings of a bankruptcy case can take many steps before a Plan of Reorganization is approved and claim payouts are ultimately distributed.
By submitting a valid Proof of Claim to the court, creditors can rest assured their bankruptcy claim is accurately represented in the case, and that they have a legal right of recourse against the Debtor.