What is a “proof of claim” in bankruptcy, and when must a creditor file this document?

In a consumer bankruptcy action, the debtor is required to list any and all outstanding debts, including the name of the creditor and the amount owed. The purpose of the proof of claim form is for the creditor to ensure it will be paid when it comes time to restructure or liquidate the debtor’s estate, and is generally required for all unsecured creditors wishing to receive a piece of the pie.

Like any court filing, there are a number of formal requirements that apply to the proof of claim, including timely submission to the bankruptcy court. Under current guidelines, a proof of claim must be submitted within 90 days of the first creditors’ meeting – a procedural milestone that takes place early in the process.

This timeliness requirement was recently put to the test in a case reaching the U.S. Court of Appeals for the Eleventh Circuit. In that case, the debtor owed approximately $2,000.00 to a furniture company, and the last activity on the account occurred in October, 2001, at which point the company sold the debt to a credit recovery company. In October, 2004, the three-year statute of limitations on debt collection ran out, effectively time-barring the collector from recovering the outstanding balance.

In 2013, the debtor filed for Chapter 13 bankruptcy, during which the debt collector submitted a proof of claim for the debt. In a unique move, the debtor filed a defense against the debt under the Fair Debt Collection Practices Act (FDCPA), which prohibits any misleading conduct by a debt collector that insinuates it has a legal right to recover a debt when it, in fact, does not.

After a dismissal of the defense by the U.S. Bankruptcy Court, the Eleventh Circuit upheld the defense's claim, citing that the FDCPA undoubtedly applies to the situation, and “[the] debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt.”

Since debt can easily become overwhelming and bankruptcy can be a complicated process, if you are in need of assistance with a Chapter 13 or Chapter 7 consumer bankruptcy matter, please contact Miami Valley Bankruptcy today to receive expert legal advice and attention. Serving the entire Miami Valley area of Ohio, we can be reached at 937.262-4789.