Chapter 4: Representing Creditors in Consumer Bankruptcy Cases

I.   Overview

§4.1   This chapter is intended to provide creditors and their counsel with a basic understanding of the fundamentals of representing creditors in Chapter 7 and Chapter 13 consumer bankruptcy cases. Accordingly, the most common issues facing creditors, such as filing proofs of claim and dealing with the automatic stay, are addressed in this chapter. The chapter begins with a discussion of matters common to all creditors in consumer bankruptcy cases and continues with the most important concerns of creditors in Chapter 7 and Chapter 13 consumer bankruptcies.

II.   General Considerations

A. Filing Proofs of Claim

§4.2   To receive payment from the bankruptcy estate, a creditor must file a proof of claim in the bankruptcy case of the debtor. Creditors paid directly in Chapter 13 cases also should file proofs of claims. 11 USC 101(5) defines a claim as a

(A) 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; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

“A proof of claim is a written statement setting forth a creditor’s claim.” Bankruptcy Rule 3001(a). A proof of claim is deemed allowed for purposes of payment unless a party in interest objects to the allowance of the proof of claim. 11 USC 502(a). Bankruptcy Rule 3002(c) provides that a creditor must file a proof of claim within 70 days of the case being filed in Chapter 7, Chapter 12, and Chapter 13 cases. In some cases, the documents required to be attached to the claim are not immediately available. Bankruptcy Rule 3002(c)(7)(B) (amended to Bankruptcy Rule 3002(c)(6)(B), effective December 1, 2024) permits a creditor whose claim is secured by the debtor’s principal residence 120 days from the date the case was filed to attach the documents; however, a claim with the amounts must still be filed in the 70-day time frame. Creditors may seek a 60-day extension of the deadline by filing a motion; however, the grounds for an extension may be limited to insufficient notice of the bankruptcy case, which does not allow a reasonable time to file a claim. Bankruptcy Rule 3002(c)(6). A governmental unit is allowed 180 days and may file a motion to extend the time period. An untimely claim is subject to disallowance upon objection of a party of interest. 11 USC 502(b)(9). In Chapter 7 cases, an allowed unsecured claim, proof of which is tardily filed, is entitled to a distribution from property of the estate, but only after payment in full of allowed, timely filed, general unsecured claims. 11 USC 726(a)(3).

The court no longer provides a copy of the proof of claim form with the notice of filing. Most courts have a link to the proof of claim form on their websites. The Proof of Claim, Form B 410, is available online on the U.S. Courts forms webpage, along with the Mortgage Proof of Claim Attachment, Form B 410A (discussed in §4.5); Notice of Mortgage Payment Change, Form B 410S-1 (discussed in §§4.49 and 4.56); and Notice of Postpetition Mortgage Fees, Expenses, and Charges, Form 410S-2 (discussed in §4.56).

Any personally identifiable information of the debtor, such as the debtor’s Social Security number or account number, should be redacted from the claim form and any attachments filed with the claim as the proof of claim becomes public information once filed. It is a best practice to redact any information that may allow a bad actor to obtain enough information to compromise the borrower.

The top of the form requests general information such as the case name and number and the name and mailing address of the creditor. This information can be obtained from the court’s docket. Part 1 requests general information, such as the identity of the creditor and the creditor’s noticing and payment addresses. Part 2 covers basic claim information, including the last four digits of the account number or claim identifier, the total claim amount (the balance of the debt that the debtor would have had to pay on the filing date to satisfy the claim), the basis for the claim, the identification of any collateral for secured loans, the applicable interest rate, whether the rate is fixed or variable, and the total amount of prepetition arrearages—the amount necessary to bring the loan current as of the date the bankruptcy was filed. Additionally, Part 2 allows lessors to indicate the claim is based on a lease. Further, creditors whose claim is subject to a right of setoff can disclose that in Part 2. If the claim is subject to priority under 11 USC 507(a), the basis for the priority status must be disclosed by checking the appropriate box and providing the amount entitled to priority.

To avoid an objection to the proof of claim, documents evidencing the debt and any relevant security interest should be attached to the proof of claim. Bankruptcy Rule 3001(c)(1) states when a claim is based on a written document, a copy of that document must be attached to the proof of claim. For the most common types of secured claims, a copy of the contract, security agreement, note, and mortgage underlying the debt and evidence of perfection of the security interest should be attached. See Bankruptcy Rule 3001(d). For unsecured claims, a copy of a judgment, billing statements, a contract, or, at the very least, an account summary should be attached to the proof of claim. A claim that complies with the Bankruptcy Rules on claims is prima facie evidence of the validity and amount of the claim. Bankruptcy Rule 3001(f).

Bankruptcy Rule 3001(c)(2) specifies additional requirements for the proof of claim in an individual debtor case. If a claim in addition to the principal amount includes interest, fees, expenses, or other charges incurred before the petition was filed, an itemized statement of these charges must be filed with the proof of claim. Bankruptcy Rule 3001(c)(2)(A). If a security interest is claimed in the debtor’s property, a statement of the amount necessary to cure any default as of the date of the petition must also be filed with the proof of claim. Bankruptcy Rule 3001(c)(2)(B). If a creditor fails to provide the required information, the court may prevent the creditor from presenting the omitted information, in any form, as evidence unless it determines that the failure was substantially justified or is harmless; award other appropriate relief, including reasonable expenses and attorney fees; or both. Bankruptcy Rule 3001(c)(2)(D) (amended to Bankruptcy Rule 3001(c)(3), eff. Dec 1, 2024). See §4.5 for discussion of additional requirements regarding a secured interest in a debtor’s principal residence.

Bankruptcy Rule 3001(c)(3) provides that when a claim is based on an open-end or revolving consumer credit agreement (except one for which a security interest is claimed in the debtor’s real property), a statement must be filed with the proof of claim, including all of the following information that applies to the account: (1) the name of the entity from whom the creditor purchased the account, (2) the name of the entity to whom the debt was owed at the time of an account holder’s last transaction on the account, (3) the date of an account holder’s last transaction, (4) the date of the last payment on the account, and (5) the date on which the account was charged to profit and loss. Bankruptcy Rule 3001(c)(3)(A). On written request by a party in interest, the holder of a claim based on an open-end or revolving consumer credit agreement must, within 30 days after the request is sent, provide the requesting party with a copy of the writing specified above. Bankruptcy Rule 3001(c)(3)(B).

Part 3 requires the party signing the claim identify whether it is an attorney or the creditor itself. A person signing a proof of claim should ensure that the information in the claim is accurate and has been filed for a proper purpose. As noted in the disclaimer above the signature line, a person who signs the proof of claim does so under penalty of perjury. Moreover, an attorney who improperly signs a proof of claim is subject to sanctions under Bankruptcy Rule 9011.

Differences in filing proofs of claim in Chapter 7 and Chapter 13 cases are detailed in §4.31.

B. The Automatic Stay

§4.3   After the debtor files the bankruptcy case, all actions by creditors must cease due to the existence of the automatic stay. 11 USC 362(a). Immediately upon the filing of the petition, the automatic stay is imposed (thus the name automatic stay). The stay prevents creditors from taking any action against the debtor or against property of the estate. The automatic stay is in effect when the debtor files the bankruptcy petition with the court, with certain exceptions. For example, if the debtor has had two previous cases dismissed in the preceding one year and the debtor files another case, there is no automatic stay unless the debtor seeks an order from the bankruptcy court to have the automatic stay imposed. 11 USC 362(c)(4). A second common exception is when an in rem order is entered pursuant to 11 USC 362(d)(4). Additionally, the automatic stay terminates after 30 days if the debtor has had one case pending in the last year that has been dismissed. 11 USC 362(c)(3). These exceptions are discussed in more detail in §4.59.

11 USC 362 contains a list of actions that must cease as a result of the automatic stay. Any action taken in violation of the automatic stay is void or voidable and the debtor may seek damages and sanctions against the violating creditor. See 11 USC 362(k). Creditors need to be aware that actual knowledge of the filing of the bankruptcy case is not needed. It can be enough that the action was taken after the petition was filed.

Another interesting twist to the automatic stay is that it can apply to a nonbankrupt party. If the debtor had a cosigner on a consumer debt, the codebtor stay protects the nonfiling cosigner in a Chapter 13, but not in a Chapter 7, case. 11 USC 1301 imposes what is known as the codebtor stay. For example, if the debtor’s parent cosigned on an automobile loan and the debtor files a Chapter 13 case, the creditor would be prevented from pursuing the collection of the debt from the parent until the codebtor stay is vacated. Using the same example, if the debtor files a Chapter 7 case, the parent receives no such protection. A codebtor stay does not exist in a Chapter 7 case. It is important to note that the nonfiling codebtor stay may exist even when the stay regarding the debtor has terminated pursuant to 11 USC 362(c)(3).