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Proof Of Claim

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What Is A Proof Of Claim?

A proof of claim is a formal document that a creditor submits to receive money from a debtor who filed for bankruptcy. 

Deeper Definition

An individual or organization files for bankruptcy when they realize that they cannot pay the debt they owe their creditors. Bankruptcy is a legal process through which debtors may seek relief from some or all of their obligations. The court decides whether to relieve them of the debts, meaning they no longer have to pay them. The court also could dismiss their request if it believes the debtor still has enough assets to cover their debts.

If a creditor wants to receive part or all money owed by a debtor who filed for bankruptcy, they must file a proof of claim at the court. It is a formal statement asserting a creditor’s right to receive a share of the money realized when a debtor’s assets (if any) are sold off to cover some of their debts.

By filing a proof of claim, creditors increase their chances of recouping their losses. All or at least a portion of their due amount. Usually, in many bankruptcy cases, only a few creditors receive a cut of their due. In some cases, none will be paid. When a debtor files for bankruptcy, it usually means that they do not have any valuable assets left to cover their debts.

Typically, a proof of claim will include the following information:

  • Amount owed 
  • Documents to back up the debt claim 
  • Answer whether the debt is secured with collateral or not
  • Address for notifications and potential payments

Proof Of Claim Example

Imagine someone who owes you files for bankruptcy. However, because the money is a lump sum, you want to recoup at least some of it. What you should do is file a proof of claim at the court. 

You should note that just because you filed this document doesn’t mean you would be paid your due in whole or at all. Based on the funds available from the sale of a debtor’s remaining assets (if any), the court will determine which debts to prioritize.

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