How Do my Credit Cards and Other Unsecured Creditors Get Paid in a Chapter 13 Bankruptcy?

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One of the many differences between a chapter 7 and chapter 13 bankruptcy is that; the filing of a chapter 13 bankruptcy allows the debtor to retain its unexempt assets while making payments towards its creditors. The percentage that is paid back to the creditors ranges from one percent to 100 percent. An unsecured creditor who wishes to receive payments must file a proof of claim by the deadline set by the court.

Below are several scenarios to explore when a creditor files a proof of claim and how to approach the filing of such claims in a bankruptcy. According to the bankruptcy rules of procedure, a proof of claim filed in accordance with the rules constitutes prima facia evidence of the validity and amount of the claim filed.

  • Timely Filed Proof of Claim:
    The debtor can and should review the proof of claim for accuracy. If the claim is accurate, the creditor will receive its distribution according to the plan filed. However, if upon review of the claim the debtor notices erroneous charges, the claim is barred by the statute of limitations or is a bogus claim – the debtor should object to the proof of claim filed. The objection will be set for hearing and the court will determine whether to strike the claim in its entirety or whether a portion of the claim should be stricken.
  • Untimely Filed Proof of Claim:
    Under the bankruptcy code section 502(b)(9), an unsecured claim of a creditor with notice of the bankruptcy filing who fails to file a proof of claim is deemed disallowed and is not entitled to any distributions under the bankruptcy plan – and more importantly, the creditor is subject to the discharge order when the bankruptcy is completed.

Furthermore, in In re Jackson, 11-22133-PGH, the court held that in a chapter 13 setting, a creditor that fails to timely file an unsecured claim in a chapter 13 may not rely on excusable neglect. As the bankruptcy rules explicitly provides that the deadline for filing proofs of claim in a chapter 13 under a very narrow set of facts, which excusable neglect is not a listed factor.

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