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Chapter Twenty-One.
Claims
 After reading this chapter, you will be able to:
 Describe the procedures and forms used in filing
creditor claims in Bankruptcy proceedings
 List the various basic objections which a trustee
may make to a creditor’s claim
 Define the various classifications given to creditor
claims in bankruptcy estates: Secured,
administrative, priority, unsecured, and
subordinated
 Describe the Statement of Intention procedure
applicable in consumer proceedings
Claim
 Remember that a ‘‘claim’’ is defined as
‘‘right to payment, whether or not such right
is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable,
 secured, or unsecured.’’ 11 U.S.C. 101(5).
Filing a Proof of Claim
 Deadline: By claims bar date set by Court or
United States Trustee
 Documents:
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Proof of Claim: Official Form 10
Evidence of Claim (such as promissory note;
invoice)
Evidence of perfection of security interest
(such as recorded mortgage or UCC financing
statement)
Objection to Proof of Claim
 Objection Documents:
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Notice of objection—30 day notice required
Declarations, where necessary
Points and authorities, where necessary
Procedural Claims Objections
 Late filed claims
 Duplicate claims
 Claim lacks adequate supporting
documentation
Substantive Claim Objections
 A defense to the claim applicable under
nonbankruptcy law (such as statute of
limitations)
 Postpetition interest
 A property tax claim exceeding the property’s
value
 Excessive or unreasonable insider
atttorneys’ fee claims
 Postpetition alimony, support, or maintenance
payments
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Substantive Claim Objections
 Future rent on a rejected lease limited to
greater of one year’s rent or 15 percent of
three years’ rent remaining under lease, plus
actual unpaid rent
 One year’s compensation, plus any actual
unpaid compensation due under a long-term
employment contract
 Claim is subject to the trustee’s avoiding
powers
 Unreasonable refusal to accept composition
in consumer case
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Priority Claims
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Domestic support obligations
Administrative claims
“Gap Claims” incurred in involuntary proceeding
Unpaid wages and benefits incurred within 90 days up to
$10,000 per individual
Pension plan contributions incurred within 180 days up to
$10,000 per employee
Farmers or fishermen with crops or catch in storage facility
Deposits for consumer goods or services of up to $1,800
Most tax claims
Financial institution minimum capital
Death or personal injury caused by substance abuse
Secured administrative claim where collateral used without
consent or prior court order
Administrative Expenses
 Section 503 concerns administrative expenses.
 Administrative expenses are all claims incurred by an
estate after an order for relief has been entered as
well as any approved professional expenses incurred
after commencement of the bankruptcy.
 Administrative expenses are normally accorded the
highest distributive priority under the Bankruptcy
Code except perhaps for superpriority secured claims
approved by the court u.nder Sections 364 or 507(b).
Fee Sharing Prohibition
 Section 504 prohibits fee sharing, a practice
that is common in some areas of the legal
profession outside of the bankruptcy system.
 Section 504 prohibits referral fees in
bankruptcy proceedings.
Tax Claims Determination
 Section 505 permits the Bankruptcy Court to
determine previously undetermined tax
claims.
 This provision specifically states that the
Bankruptcy Court has jurisdiction to rule on
the validity of tax claims affecting an estate.
Secured Claims
 A secured creditor is a creditor with a lien
upon property in which the estate has an
interest.
 The focal point of Section 506 lies in
determining the value of the collateral
securing a secured claim.
Statement of Intention
 Contents
 1. Notice required to be given secured
creditors of consumer debt, advising of
intended disposition of collateral after a
Chapter 7 filing
 2. Methods of disposition
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a. reaffirm
b. return collateral
c. redeem collateral
Statement of Intention
 Time Limits
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1. Notice must be given within 30 days of filing
2. Intention must be performed within 30 days
of date first set for meeting of creditors
3. Stay relieved by operation of law at end of
time period (11 U.S.C. §362(h)).
Redemption
 Redemption involves the right of a Chapter 7
consumer debtor to pay a secured creditor
the fair market value of the collateral, thereby
obtaining a release of the lien.
Priority Claims
 Certain claims are categorized as unsecured
priority claims.
 Priority claims are required to be satisfied
prior to other general unsecured claims in all
proceedings unless an affected creditor
agrees to a lesser treatment.
Categories of Priority Claims
 Claims for domestic support obligations
 Administrative expenses under Section 503
 Unsecured gap claims incurred under Section 502
 Unpaid wages
 Unpaid contributions to an employee benefit plan
 Unsecured claims of grain producers or fishermen for their
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produce or catch in the possession of a storage facility
Situations involving consumers who have made deposits for
consumer goods or services
Tax claims
Commitment by a financial institution to meet minimum capital
requirements to an appropriate regulatory agency
Claims for death or personal injury resulting from the operation
of a motor vehicle or vessel because the debtor was intoxicated.
Section 507(b)
 Section 507(b) provides a secured creditor a
priority claim superior to all other
administrative expenses where the creditor’s
collateral has been sold, used, or leased
without consent or court approval.
Codebtor Claims
 Section 509 is about the claims of a codebtor
of a debtor.
 The cosignor of a loan is a codebtor.
 If a codebtor pays the debts of a debtor, then
the codebtor aquires the rights of the satisfied
creditor.
Subordination
 A claim that is subordinated is given a lesser
priority than it is otherwise entitled to under
the Bankruptcy Code.
 A creditor may be subordinated for two
reasons:
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If a creditor consents to subordinate itself to a
lesser priority claim
Equitable subordination—a claim may be
equitable subordinated by a motion.