Bankruptcy Claims Information
- The most common types of bankruptcy under the United States Bankruptcy Code are Chapter 7, Chapter 11 and Chapter 13. Chapter 7 and Chapter 13 are personal bankruptcy while a Chapter 11 is a business bankruptcy. Under a Chapter 7 bankruptcy, all assets are sold off and any proceeds are used to pay off creditors of the estate, usually within six months time. A Chapter 13 bankruptcy requires that debtors make plan payments to a trustee for a period of three to five years, and the trustee makes payments out to creditors during that time period. A Chapter 11 bankruptcy is a business reorganization system wherein a trustee decides how to best pay creditors by reorganizing a business to run more efficiently or possibly just selling off assets.
Filing a Claim
- When a creditor wishes to file a claim with the bankruptcy court, it must file a "Proof of Claim". This document is a standardized document, usually available from the courthouse, that requires creditors to fill out standard information regarding the claim. Supporting documents are needed, such as any contracts signed, account balance sheets or bills. The claim needs to be filed within the statute of limitations period on that claim for your state.
- An unsecured claim is a claim that is unsecured by any collateral on the loan. An example of this type of debt is a credit card bill. These types of claims, since they are not secured, are often not paid back in full when someone files for bankruptcy. These debts have a lower priority than either priority unsecured claims or secured claims.
Priority Unsecured Claims
- A priority unsecured claim is an unsecured debt; however, under the federal law, it is given a priority status. This can be child support, alimony or spousal support debt. These debts must be paid back in full and can not be discharged by filing for bankruptcy. These claims are paid through the court system during the bankruptcy proceeding.
- A secured claim is a loan that is "secured" by collateral, such as a mortgage or car loan. If a debtor defaults on a secured debt, the creditor is able to repossess or foreclose on the asset to recoup their loan. Although this debt cannot be discharged, it is possible to stop foreclosure or repossession by filing for bankruptcy, even if it is only temporary. These loans must be paid back in full or brought current by the bankruptcy, otherwise the collateral will be sold or given back to the creditor to pay the claim.