Claim in bankruptcy

A Claim in Bankruptcy is a formal document sent to the Trustee in Bankruptcy notifying the bankrupt estate that a person has a lawful claim against the assets of the bankrupt. It often has to be filed in the form of an affidavit. The Claim sets out the amount owing as of the date of the bankruptcy, and any claim for a preference to the assets. Only unsecured creditors may make a claim, as secured creditors are required to realize on the value of their security before turning to the remaining assets of the estate. Although a document called a Claim in Bankruptcy is used in proceedings in both Canada and the United States, the form is different although they share many similar aspects.

On receipt of a claim, the trustee must notify the claimant whether the claim will be accepted or rejected. Common reasons for rejecting a claim are:

- the claim is not liquidated, such as a claim for damages for pain and suffering that is not the result of a judgment debt;

- the claim does not contain any set-offs to which the bankrupt is entitled by operation of law;

- that the amount in the claim is in dispute, such as a bill for defective goods.

- that the creditor is claiming a higher priority than they are entitled to, such as an ordinary creditor claiming a preference in the estate, or to certain funds or property of the estate.

If a claim is rejected, the claimant may apply to the bankruptcy court for certification of its claim.

There is usually a deadline for filing claims, to allow the trustee to determine the distribution of any funds obtained from the liquidation of the estate. Claims are paid out first to preferred creditors, then to ordinary secured creditors pro-rata to the final value of their claims.

Disputed claims, such as lawsuits with countersuits, often make the claims process inappropriate or impossible. However, lawsuits involving bankrupt persons can usually only proceed with the permission of the bankruptcy court.

See also

• Bankruptcy
• Insolvency practitioner