When a bankruptcy is filed, creditors need to file a proof of claim. A proof of claim is basically a creditor stating: we are the creditor, this debt is owed and this is how much we (the creditor) are owed.
What Is A Proof of Claim?
A proof of claim is important for two reasons. First, it provides proof that the claim is valid and owed (hence the name proof of claim). Second, the proof of claim notifies the bankruptcy Trustee that the creditor wants to be paid through the bankruptcy payments in a Chapter 13 bankruptcy.
What If A Proof of Claim Isn’t Filed?
If a creditor fails to file a proof of claim in a Chapter 13 bankruptcy they will not receive any payments and will not be paid. Now, that is not really an issue when it comes to unsecured debts like credit cards, personal loans or medical bills because those debts weren’t scheduled to be paid in full anyway, but it is an issue when it comes to secured debts such as mortgages and car payments. You might be thinking, “That sounds like a good thing if my creditors don’t file a proof of claim. If they don’t, then they don’t get paid and it’s their fault.” Unfortunately, that is not the case.
If your mortgage company fails to file a proof of claim, you still make your same monthly bankruptcy payment every month for the duration of the bankruptcy. But since the mortgage company didn’t file a proof of claim, they won’t receive a dime and more money will go to unsecured creditors and the rest of the creditors who filed proofs of claims. Then, at the end of your bankruptcy, you’re thinking you are all caught up on your mortgage payments and owe way less than you did when you originally filed, only to find out that since the mortgage company didn’t file a proof of claim, they got paid nothing, and now your mortgage is up to 5 years behind and foreclosure proceedings could start anytime, if it hasn’t already. Similarly, it’s also important that unsecured, priority debts like taxes, child support and alimony also have proof of claims filed if they are owed money as of the date of the bankruptcy petition being filed.
So you can see that a proof of claim is very important. Your attorney’s office should have procedures in place to make sure that secured creditors are filing proof of claims to avoid this problem. If a creditor fails to file a proof of claim, your attorney can file one on their behalf.