Bankruptcy Notice

Bankruptcy Notice

BY JAY WINSTON, WINSTON & WINSTON, P.C.

 

The first notice that a creditor receives concerning a bankruptcy is usually a computer- generated notice from the bankruptcy court. Sometimes these computer-generated notices are confusing and often the creditor will just discard the bankruptcy notice if the amount of the debt is relatively small, but our offices notice that more clients are filing their own proof of claims with small debts and in some instances even with large debts. Accordingly, this article is directed to help you understand the notice of bankruptcy and to help in completing a proof of claim. Notwithstanding same, we do recommend that you should consult with counsel before filing a proof of claim, whether a small or a large debt.

The bankruptcy notification usually provides the following information:

  •  Name and the location of the bankruptcy court, and the case number.
  • The name and address of the debtor.
  • The date that the petition was filed and whether it has been filed under Chapter 7, 11 or 13.
  • The date and time of the first meeting of creditors.
  • A statement that suits and proceedings against the bankrupt are stayed preventing creditors from commencing or continuing suits in state or federal courts and compelling creditors to assert their claims in the bankruptcy court, a more favorable arena for the bankrupt.
  • The last date for filing of objections is usually set forth in the notice, or in a Chapter 7 proceeding within 60 days after the date set for the first meeting of creditors.
  • The names, addresses, and telephone numbers of the attorney for the debtor and of the trustee as well as the name of the bankruptcy judge.
  • Some notices specify that the bankruptcy is listed as a “no assets” case and a proof of claim need not be filed. If assets are located by the trustee, a new notice will be sent enabling the creditor to file a proof of claim.
  •  The total amount of assets and liabilities may be listed.

 

When a creditor receives the bankruptcy notice, the avenues to be considered are the following:

a. If the claim of the creditor is too small to justify spending the time and effort to file a proof-of-claim, the creditor may ignore the notice of bankruptcy.

b. The creditor may prepare and file a proof-of-claim with the bankruptcy court.

c. Consultation with an attorney is recommended if:

1. the creditor is a secured creditor and wishes to remove the stay of proceedings to enable the creditor to repossess and reclaim the property covered by a secured lien, or seek from the bankrupt a reaffirmation (see Reaffirmation) of the indebtedness

2. the claim is large

3. the claim is complicated

4. the creditor suspects fraud or preferences (see Preferences) and is considering objecting to the discharge

5. the security that the creditor holds is subject to rapid devaluation

6. the creditor is uncertain as to which way to proceed

The question of notification of the filing of a bankruptcy petition is governed by certain rules of which many creditors are unaware. The automatic stay is effective even if the creditor is not aware of the filing of the bankruptcy and the creditor may be liable for damages if the creditor proceeds to recover collateral under a lien after receiving notification of the bankruptcy.

If an employee or agent of the creditor has received notice, notice to one office is sufficient notice to the creditor even if the creditor has a multitude of offices. Many courts have stated that the creditor has a duty to inquire before proceeding if the creditor has reason to believe that the debtor may have filed a petition in bankruptcy or even contemplates filing a petition in bankruptcy.

A proof-of-claim form is sometimes furnished by the court, or it may be obtained in a stationery store that stocks legal forms. (A sample form is in the Appendix.) A summary of the basic information that a bankruptcy proof of claim requires is furnished. We recommend that if you complete a proof of claim, the document should be reviewed by competent counsel.

  1. At the top of the form insert the proper bankruptcy court, corresponding to the name appearing on the notice of bankruptcy.
  2. The case number (or the index number) must correspond to the case number on the notice of bankruptcy. (The number appears with the year ’99-0000 or 0000-99).
  3. The debtor’s name, which corresponds to the name on the notice of bankruptcy, is usually inserted in the rectangular outlined box.
  4. The first blank is the identification of whether an individual, a partnership, or a corporation is filing a proof of claim.
  5. If a corporation is filing a proof of claim, list the name and the title of the officer. If a partnership, list the name of the partner.
  6. Under certain circumstances, an agent may file a proof of claim. (Consult with counsel.)
  7. The total amount of the claim must be inserted.
  8. The basis of the claim is described by answering the question which asks for the “consideration of the debt.” “Merchandise shipped,” “monies loaned,” or “services rendered” are appropriate responses. Attach invoices, the note or check evidencing the monies loaned, or a bill describing the services rendered.
  9. If the claim is based on a written agreement, attach a copy of the agreement.
  10. If the claim is founded on an open account, set forth the invoices or the bill for services rendered as specified above.
  11. A statement must be made that a judgment has been rendered for the amount due or that no judgment has been rendered for the amount due.
  12.  An allegation must be set forth as to any payments made and credited and deducted from the amount due.
  13. A statement must be made that the claim is not subject to any set-off, offset, or counter claim, and if so, describe the nature of the claim, i.e., the debtor is claiming defective merchandise or claiming fifty-four cartons were never received.
  14. A secured claim must be designated as a secured claim and a copy of the documents supporting the secured claim must be attached, including evidence of perfection of the lien, i.e., UCC financing statement and the security agreement or the real estate mortgage.
  15. A general unsecured claim must be designated. If priority or secured claims are filed, consult with an attorney. In the event your claim is not listed as secured, its secured status may be lost and the claim will be treated as unsecured.
  16. Whenever a proof of claim is forwarded to the bankruptcy court, use certified mail or a post card should be enclosed identifying the case by name and case number to be acknowledged by the bankruptcy clerk and thereafter retained as evidence the proof the claim was properly filed on a specific date.

Chapter 7. A proof of claim must be filed within 90 days after the first meeting of creditors. Emphasis is on the first meeting of creditors and not the last meeting of creditors (which is the marker for objections to discharge). All proofs of claim are deemed valid unless the trustee or debtor files an objection to the claim.

 Chapter 11. In all Chapter 11 reorganization cases, creditors should file proofs of claim.13 The time within which a proof of claim must be filed (bar-date) is set by the court and is printed on the notice of bankruptcy. If a claim is properly listed in the schedule by the debtor and is not disputed, the claim will be recognized and will receive a full distribution, even if the creditor does not file a proof of claim. Some creditors examine the schedules, and if the schedules list the creditor, no proof of claim is filed. The possibility is always present that the claim is listed improperly, is not recognized, will become lost, or, for any number of reasons, will not be paid. We recommend that every creditor should file a proof of claim in a Chapter 11 proceeding even if the creditor is properly listed in the schedules.

Chapter 13. Under a Chapter 13 proceeding, a creditor must file a proof of claim to share in any distribution. The notice of bankruptcy provides a “bar-date” by which time the proof of claim must be filed. Under certain circumstances, both in Chapter 11 and Chapter 13 proceedings, the bar-date may be modified by court order in response to an application to court to permit a creditor to file a late proof of claim. These circumstances are extremely rare especially with consumers, for the court rarely grants leave to extend the time.

Rule 3002 of the Bankruptcy Code states that a proof of claim shall be filed with the clerk in the district where the case is pending. In a Chapter 7, Chapter 12 or a Chapter 13, the proof of claim must be filed within 90 days after the first date set for the Meeting of Creditors. The deadline is always based on the first Meeting of the Creditors, not any subsequent or adjourned meetings. One exception to this is in the event that assets are discovered after the bankruptcy, the creditors will be notified of the deadline for filing claims.

When filing claims, request that the clerk stamp a copy of the proof of claim and return same to you. The best approach is to afford the bankruptcy clerk an additional copy of your proof of claim and to request the bankruptcy clerk to stamp on the additional copy the fact that the claim was received and filed. Provide a self-addressed stamped envelope. If you fail to obtain a return of your stamped copy within 30 to 45 days, refile the proof of claim. The initial proof of claim should be filed within the 30-days after the first Meeting of Creditors to allow sufficient time for the bankruptcy clerk to stamp the proof of claim and return same to you, and to refile the claim if you do not receive your stamped copy.

Today, most bankruptcy courts are accessible electronically and the option is available to access the docket of the bankruptcy court electronically to see whether your proof of claim has been filed.

In a Chapter 7 proceeding under Rule 726(a)(3), a proof of claim which has been filed past the deadline is satisfied after other unsecured claims, which have been properly filed, are paid in full. The bankruptcy court does not disallow the claim for failure to file within the specified time, but states that the claim should be subordinate to other timely filed claims. When a proof of claim is not filed within the deadline, it is recommended that the creditor consult with counsel to examine the case law which may be applicable to the creditor’s situation. Some cases have allowed proof of claims which have been filed past the deadline to be filed as properly filed proof of claims in the event the creditor performs some other writing or engages in some other conduct which indicated that a proof of claim was being filed.

Copyright © 2001, 2002 Winston & Winston P.C. All rights reserved.
Revised: July 29, 2003

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