Listing your debt is an essential part of filing for bankruptcy. And it’s equally important to know when a bankruptcy claim is contingent, unliquidated, or disputed. Here’s why.
While bankruptcy claims, in most cases, are very straightforward, figuring out the amount you owe to a creditor can sometimes be challenging.
The claim could depend on what someone else does, or it isn’t determined yet. Or perhaps, you and your creditor cannot agree on the actual amount owed.
If any of these is the case, you may want to seek immediate legal advice from your bankruptcy lawyer in Georgia. Nonetheless, read this article to know which claim to indicate in your bankruptcy papers.
Claims in bankruptcy
What does a claim mean in bankruptcy? You can look at it in two ways: a right and an obligation.
In a bankruptcy case, your creditor has a claim in your bankruptcy proceedings. For the creditor, a claim is a “right to payment.” For you, however, it is “nothing more nor less than an enforceable obligation.”
When you process your bankruptcy, you need to fill out numerous bankruptcy forms to indicate your financial situation. On these forms, you have the “obligation” to disclose the following to the court, trustee, and creditors:
- What assets or properties you own
- How much you make and owe
- Your contracts and leases
- The names of your co-debtors
- Your financial affairs and social security number
Whether by mistake or deliberate action, concealing or failing to divulge such information can result in penalties.
On the other hand, the creditor must file a “proof of claim” to preserve or protect its right to a claim. A proof of claim is an official form filled out by the creditor to indicate the amount owed by the debtor.
When filing a proof of claim, the creditor will need to indicate the following information:
- Debtor’s name and the bankruptcy case number
- Amount owed as of the petition date
- The creditor’s information, including a mailing address
- The basis for the claim (e.g., a loan or credit card balance or a personal injury)
- Claim type (secured or unsecured).
The creditor should attach supporting documentation, such as the contract, as evidence of the claim. Official attachment forms are available. Also, the creditor or an authorized representative must sign the proof of claim.
As mentioned earlier, you and your creditor may disagree on how much money is owed. And in some cases, the amount of debt could depend on somebody else’s action; thus, it hasn’t been determined yet.
So, when filing for a bankruptcy case, you can indicate whether the creditor’s secured claim is contingent, unliquidated, or disputed.
Let’s discuss what each term means.
A contingent claim is a derivative or financial security with a payout that depends on uncertain future events. In other words, the payment for a contingent claim relies on a situation that hasn’t occurred yet or may never occur.
You consigned to your brother’s secured loan, specifically a car loan. You won’t be liable or responsible for paying the loan unless your brother, the principal debtor, defaults.
In short, your liability as a consigner is “contingent” or dependent upon an event or condition your brother might trigger.
Since such an event may not be guaranteed to take place, a contingent claim may or may not become valid. It’s usually filed by creditors when a debtor files for personal bankruptcy. The claim is handled based on state law and court precedence.
The basic premise is that there’s a cause that a triggering event may occur and make the claimant financially obligated. Therefore, it’s the creditor’s responsibility to the court to demonstrate that a triggering event really occurred, thereby making a claim valid.
If the court decides to treat the contingent claim as an absolute claim, the creditor receives payment.
Debts (e.g., loans and credit cards) based on contracts between parties are often easy to figure out. Loan or credit contracts, for example, explain the debtor’s duties, liabilities, and other terms such as payment amount and interest rate.
However, sometimes something must occur before the creditor knows how much is owed. In this situation, a claim is unliquidated.
An unliquidated claim means a debt may exist, but the exact amount is unknown. For example, you have admitted to liability in a car accident lawsuit.
The monetary cost to the injured person can’t be determined because of the other party’s ongoing medical treatment.
Unless the treatment ends, those costs won’t be finalized or liquidated. You also won’t determine the total cost of your lawyer’s fees until your case is resolved. In other words, both the insurance claim and your attorney’s claim are unliquidated.
What is a disputed claim?
Disputed claims are obligations you believe you don’t owe to your creditors. When you file for bankruptcy, you need to let the court know about these kinds of claims.
If you’re filing a Chapter 7 bankruptcy case, you won’t do anything else as long as the debt can be easily discharged. Also, there’s not much to sort out if there isn’t any money to distribute to creditors.
But again, disagreements between you and your creditors can occur. So, you file a dispute claim by disclosing the following: the amount you owe, amount the creditor claims is owed, and any amount you paid to a creditor.
An example of a disputed debt is a delinquent account that doesn’t belong to you but showed up in your credit report.
Or, let’s say someone files a lawsuit against you claiming you’re responsible for an injury or damage that wasn’t your fault. In this situation, you’d want to dispute all or a portion of the medical expenses or claims charged to you.
But if you do end up with legitimately reported debt obligations, it’s important not to ignore them. Deal with the creditor first and ask them if they can allow you to resume making payments.
Make sure to list all your claims
For whatever reason, you might consider omitting a claim in your bankruptcy paperwork. You shouldn’t, though. Whether they’re bankruptcy claims you owe or those that creditors say you owe, you’re required to list them all. If you fail to list a claim, the claim may not be removed even if it qualifies as a dischargeable debt.
Listing or determining claims can be a complex process. That’s why most people who file for bankruptcy make sure they get the appropriate legal assistance to get the upper hand. So, if you find yourself struggling with your bankruptcy filing, call The Law Office of Jeffrey B. Kelly for a quick consultation.
We’ll make things easier for you!