Objecting to Proofs of Claim in Bankruptcy: Evidentiary Requirements, Burden of Proof, and Disallowance

In bankruptcy cases, creditors file proofs of claim to assert their right to receive payment from the debtor's bankruptcy estate. However, it is not uncommon for debtors or other parties to object to these claims, disputing their validity, amount, or legal basis. Objecting to proofs of claim involves a careful analysis of evidentiary requirements, burden of proof considerations, and the potential consequences of claim disallowance. This article explores the various aspects of objecting to proofs of claim in a bankruptcy case, providing insights into the legal framework and relevant considerations.

A good bankruptcy attorney will carefully review each claim that is filed in your bankruptcy case and review it for its legal sufficiency. The claim is deficient in some way, the bankruptcy attorney should object. Many attorneys who work on a flat fee basis will not bother to review the claim or whether the claim is sufficient.

1. Evidentiary Requirements for a Claim:

When a creditor files a proof of claim, they must provide sufficient evidence to support their claim's validity and the amount owed. Evidentiary requirements may include:

a. Documentation: Creditors should submit relevant documentation, such as contracts, invoices, loan agreements, or account statements, to establish the existence and terms of the debt.

b. Supporting Records: Any supporting records, such as payment receipts, correspondence, or purchase orders, can strengthen the credibility of the claim.

c. Accurate Calculation: Creditors must provide a clear calculation of the amount owed, including interest, fees, and other charges, supported by reliable accounting records.

2. Burden of Proof:

The burden of proof in bankruptcy claim objections generally lies with the objecting party. This means that the objector must present sufficient evidence and legal arguments to rebut or challenge the creditor's claim. The burden of proof requires the objector to demonstrate that the claim lacks merit, is improperly calculated, or violates bankruptcy laws or regulations.

3. Shifting Burden of Proof:

In some instances, the burden of proof may shift from the objector to the creditor. This occurs when the objector presents prima facie evidence or raises credible arguments challenging the claim's validity. Once the objector meets this initial burden, the burden shifts to the creditor to produce additional evidence or legal arguments to support their claim.

4. Claim Disallowance:

If a claim is successfully objected to, the bankruptcy court may disallow or reduce the claim. Disallowance means that the claim will not be included in the distribution of assets to creditors. Some common grounds for claim disallowance include:

a. Lack of Documentation: If the creditor fails to provide adequate supporting documentation, the court may disallow the claim due to insufficient evidence.

b. Statute of Limitations: If the claim falls outside the applicable statute of limitations, the court may disallow the claim as time-barred.

c. Unauthorized Fees or Charges: If the creditor includes unauthorized fees, penalties, or charges in the claim, the court may disallow or reduce those portions.

d. Procedural Deficiencies: Procedural errors, such as failure to file the claim within the specified deadline or failure to serve notice to the debtor, may result in claim disallowance.

e. Lack of Enforceable Agreement: If the creditor fails to demonstrate the existence of a valid and enforceable agreement supporting the claim, the court may disallow the claim.

5. Other Considerations:

a. Notice and Opportunity to Be Heard: All parties involved must be given proper notice and an opportunity to be heard during the claim objection process to ensure due process.

b. Legal Representation: Objecting to a claim can be complex, and it is advisable for debtors or other parties to seek legal representation to navigate the legal intricacies effectively.

c. Mediation and Settlement: In some cases, parties may choose to engage in mediation or negotiate a settlement to resolve claim disputes outside the courtroom, potentially avoiding costly litigation.

d. Finality and Appeals: Once the bankruptcy court issues a ruling on a claim objection, it generally becomes final. However, parties dissatisfied with the court's decision may have the option to appeal within specified timeframes and pursue further review in higher courts.

Conclusion:

Objecting to proofs of claim in a bankruptcy case involves careful examination of evidentiary requirements, burden of proof considerations, and the potential consequences of claim disallowance. Debtors or other parties seeking to challenge a creditor's claim must present sufficient evidence and legal arguments to support their objections. Understanding the legal framework surrounding claim objections, the shifting burden of proof, and the grounds for claim disallowance is crucial for navigating the complex bankruptcy process successfully. Consulting with legal professionals experienced in bankruptcy law can provide invaluable guidance throughout the claim objection process, ensuring the protection of the debtor's interests and the fair administration of the bankruptcy estate.