Deciding to get back in control of one’s finances can often mean taking significant steps to address debt. For many Michigan residents, this may mean filing for bankruptcy in hopes of having their debt discharged or to receive approval of a repayment plan that allows them to manage their debt more effectively. Because this is a complicated legal process, understanding specific parts of this debt relief method may be useful, such as a proof of claim.
When a person files a bankruptcy petition with the court and is approved to move forward with the process, creditors are notified and can come forward with a claim. If a creditor does make a claim, the document provided will give all parties involved, such as the person who filed for bankruptcy, other creditors and the court, information about the debt and the creditor’s claim. This claim provides the creditor with the opportunity to obtain at least some of what it is owed.
The proof of claim is a specific document provided by the court to the creditors, and if filed, it works in the following ways:
- It allows creditors to make their claim known in an attempt to get what they are owed.
- The document is recorded with other claims from other creditors relating to the case that also filed their proofs of claim.
- The documents are reviewed by the bankruptcy trustee, who prioritizes the debts and pays them out of the bankruptcy petitioner’s available funds.
- In Chapter 7 cases in which the petitioner has no assets to liquidate and distribute to creditors, proof of claim documents are not required.
- Creditors typically have 70 days to file their claim after the bankruptcy has been filed.
Though a creditor may file a proof of claim during a bankruptcy case, it does not guarantee that the creditor will receive any or all of what is owed. Still, this is only one aspect that goes into completing this type of case, and individuals in Michigan who are considering this debt relief method may want to determine how these claims could play a role in their individual cases. Discussing this and other related topics with legal professionals may be useful.
