We hope you have found the previous three rounds of Q&A helpful when a US client files for Chapter 11 bankruptcy protection. how claims are filed and handled in a Chapter 11 bankruptcy case.
1. Question: Is there a deadline for filing complaints and if so, how do I know this deadline?
The deadline for filing claims in a bankruptcy case is called the “deadline” and it is one of the most critical dates in a bankruptcy case. Indeed, if a complaint is filed late, it can be rejected. Unfortunately, there is no standard way to set deadlines in Chapter 11 cases. Instead, in some judicial districts, Chapter 11 debtors must file a claim with bankruptcy court to have them apply. a prescription date is set. In the other judicial districts, the prescription date is set automatically when the case is filed. While notice of the expiration date should be served on all known creditors, it is important that a U.S. bankruptcy attorney monitor a Chapter 11 case to identify the expiration date as quickly as possible, and even before sending the notice to creditors.
2. Question: What is the process for filing a complaint?
Although the Proof of Claim form is relatively simple and straightforward, it requires a substantial amount of information and, especially with respect to claims from creditors located outside of the United States, should be prepared with the assistance of ” a lawyer in order to avoid mistakes that could result in your claim being rejected and in order to best protect your rights as a creditor in the event of bankruptcy. In order for you or your lawyer to complete the form, you will need detailed information about the amount owed on the date the debtor filed for bankruptcy, including interest and fees. You will also need to submit supporting documents along with proof of the claim or an explanation of why these documents are not available. While the creditor should note the amount, type and nature of the claim on the proof of claim form itself, it is advisable to include an addendum to your claim which further sets out the basis of the claim and includes an important reserve of rights. provisions regarding your complaint.
You should make sure that the proof of claim is true to the best of your knowledge, as proofs of claim are executed under penalty of perjury. Once the proof of claim has been completed, it must be submitted. In some cases, claims are filed directly with the bankruptcy court through the electronic filing system. But, in larger cases, a court-appointed third party claims administrator accepts the filing of claims in paper or electronic form. An American bankruptcy attorney will be able to ensure that the claim is filed correctly and in a timely manner. Once filed, proofs of claim may be amended (even after the deadline), under certain circumstances.
3. Question: How are the different types of claims treated in Chapter 11 and do some claims take precedence over others?
How claims are handled in a Chapter 11 bankruptcy case depends on the type of claim:
- Secure complaints, in most cases, are not affected by the bankruptcy filing and are deemed to be secured to the same extent as before the bankruptcy. If the value of the secured party’s collateral is less than its claim, the secured party will be considered to have a partially secured claim up to the value of the security and a general unsecured claim for the balance. As a result, secured receivables generally have to be paid in full (up to the value of the underlying collateral), in cash or in other distributions, or the receivables remain secured and go through the bankruptcy case without being. affected.
- Claims for reimbursement of administrative costs are those who receive payment priority in bankruptcy. These claims generally relate to those that directly benefit the bankruptcy estate, such as the cost of goods and services provided to the debtor during the bankruptcy proceedings. While most administrative expense claims arise during the bankruptcy case, claims for goods sold within 20 days of filing for bankruptcy also take priority over administrative expenses. Subject to certain limited exceptions, all administrative expense claims must be paid in full for a Chapter 11 plan to be confirmed.
- Priority claims are those that arose before the bankruptcy case, but are entitled to priority payment. These claims include claims for the debtor’s wages and benefits (up to a limit), certain taxes and certain customer deposits. As long as there are sufficient funds, the Bankruptcy Code requires that these claims be paid in full, either soon after confirmation or over time, in order for a Chapter 11 plan to be confirmed.
- General unsecured receivables are those that occurred before the bankruptcy case and are not entitled to priority treatment. These receivables include those relating to goods sold to a debtor before filing for bankruptcy and outside the 20-day window mentioned above, and for which the creditor has not obtained security. General unsecured claims are only entitled to payment after all senior claims are paid in full and often receive only a small percentage of recovery.
- Equity holdings belong to the shareholders and, subject to certain exceptions, are only entitled to payment after full payment of all creditors.
The above treatment is what one would expect in a successful Chapter 11 case that results in a confirmed plan. If a Chapter 11 case fails, priorities may change. We’ll cover what happens in unsuccessful cases in a future series.
4. Question: Can a supplier seek to prohibit the payment of its debt?
Yes, but the bases allowed to do so are limited. The Bankruptcy Code sets out a number of grounds for preventing the discharge of a debt. In order for a debt to be deemed non-dischargeable on the grounds that it resulted from fraud, forgery or intentional or malicious harm, a creditor must bring an action in bankruptcy court to request such a determination. . You should consult a bankruptcy lawyer in the United States if you believe that there are grounds for prohibiting payment of your debt as soon as possible, as the deadline for bringing a non-discharge action is 60 days after the first meeting of Article 341 creditors (see Series three for more information on these meetings).
5. Question: What if the debtor does not agree with the amount or nature of a supplier’s claim?
If a debtor – or a trustee or other party authorized to oppose claims against the debtor – disagrees with what you said in your proof of claim (whether the amount of the claim or its nature), the debtor may either contact you directly to resolve the dispute or he may file an objection with the bankruptcy court explaining why the debtor believes the claim is incorrect or time-barred, or should be dismissed. Either way, it is prudent to retain the services of a US legal advisor to resolve any dispute on your behalf, either through informal negotiations or by formally responding to an objection. Keep in mind that there is no deadline for filing objections to claims in the Bankruptcy Code or Bankruptcy Rules and often Chapter 11 plans will allow objections to claims to be filed after confirmation.
6. Question: Can an unsecured creditor sell his debt?
Absolutely yes. As with everything, there are no guarantees in bankruptcy, especially when it comes to collections for unsecured creditors. Therefore, if you have an unsecured debt, you may want to at least consider the option of selling the debt to a third party at a reduced price to secure collateral for collection rather than waiting for the deal to close and the settlement. distribution, if applicable, to the holders of these receivables.
Please keep an eye out for series five which will address issues relating to the role of formal unsecured creditors committees in bankruptcy and whether to join such a committee or informally partner with other creditors in a bankruptcy. case.