Filing for bankruptcy involves filling out numerous bankruptcy forms. On them, you'll explain your financial situation so that the court, trustee, and creditors know:
- how much you make and owe
- what property you own
- your monthly budget, and
- whether you've transferred any property recently.
Of course, listing debt—called a claim in bankruptcy—is a pretty important part of the process.
Not only will you disclose the creditor name and amount you owe, but you'll explain whether an issue needs resolving before paying the claim. You'll do this by labeling the claim contingent, unliquidated, or disputed.
(Learn about other claim labels you'll need to know in Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority.)
Most Bankruptcy Claims Are Straightforward
In most cases, you won't run into a problem when listing your bankruptcy claims. There won't be any outstanding issues you could raise to get out of paying the debt. You simply owe the money.
For instance, if you're behind on your car loan, the claim would be for the total amount you owe. Similarly, if you owe credit card debt, the claim would be for the total balance.
When the Claim Amount Isn't Straightforward
Sometimes the amount you owe to a creditor isn't easy to figure out. Perhaps the amount you owe could depend on what someone else does or might not be determined yet. Or, you and the creditor might disagree as to how much you owe.
If any of these is the case, you'll indicate it when listing that claim on your bankruptcy papers (the form has checkboxes).
Here's what each term means.
- Contingent claim. Payment of the claim depends on some event that hasn't yet occurred and might never occur. For instance, if you cosigned a secured loan (such as a car loan or mortgage), you won't be responsible for paying it unless the other person on the loan fails to pay (defaults). Your liability as cosigner is contingent upon the default.
- Unliquidated claim. Sometimes you owe money, but you don't know how much yet. The debt might exist, but the exact amount hasn't been determined. For instance, say you've sued someone for injuries you suffered in an auto accident, but the case isn't over. Your lawyer has taken the case under a contingency fee agreement—the lawyer will get a third of the recovery if you win, and nothing if you lose. The debt to the lawyer is unliquidated because you don't know how much you'll owe the lawyer if anything, until the case settles or gets resolved at trial.
- Disputed claim. A claim is disputed if you and the creditor don't agree about the amount you owe, or if you owe anything at all. For instance, suppose the IRS says you owe $10,000 and has put an involuntary tax lien on your property. By contrast, you believe you owe only $500. You'll list the full amount of the lien, not the amount you think you owe and indicate that the claim is in dispute (you can explain how much you think you owe in the notes).
You Must List All Claims in Bankruptcy
It's common for someone to want to omit a claim from the bankruptcy paperwork for one reason or another. You can't do it. You're required to list all claims—both the claims you think you owe, and those others think you owe.
It's in your best interest to do so. If you fail to list a claim, the claim might not be erased (discharged) in your case—even if it qualifies as a dischargeable debt.
Paying Claims in Bankruptcy
If money is available to pay creditors, here's what will happen next:
- The bankruptcy trustee appointed to the case will send out a notice alerting creditors that the case is an "asset case."
- A creditor will file a proof of claim form by a particular date to share in the available proceeds.
- The trustee will review the claims and pay them according to the priority payment system in bankruptcy law.
Keep in mind, however, that each situation is unique. If you aren't clear what will happen to claims in your bankruptcy case, you'll want to meet with a knowledgeable bankruptcy lawyer.