Not all claims filed in Chapter 13 bankruptcy cases are valid. In most situations, invalid claims will be paid by the Trustee unless a party in interest objects. This blog post will focus on time-barred Chapter 13 claims and claim objection.
What are Chapter 13 Claims?
A Chapter 13 claim is a document filed by a creditor that establish the creditor’s right to be paid money through the Chapter 13. A creditor that does not file a claim in a Chapter 13 will not be paid any money. That creditor may also be prohibited from ever asking the debtor for money after the Chapter 13 is discharged.
Surprisingly, not all creditors will file claims in a Chapter 13. Even more surprising, some creditors file claims that are clearly invalid. This is where claim objection comes into play.
What is a Time-Barred Claim in Chapter 13?
To establish a valid Chapter 13 claim, a creditor must establish their legal right to seek money from the debtor. This makes sense. Not just anyone can show up to a Chapter 13 bankruptcy case and demand money from the debtor.
Typically, a creditor will file a claim that demonstrates that the debtor borrowed money and later defaulted on their payment obligations.
However, just as in a civil lawsuit, the creditor must establish a valid legal claim against the debtor.
The most common way a Chapter 13 claim fails is if it is time-barred. In other words, the debt is too old to legally collect. For most debts based upon a written contract in California, four years is the statute of limitations.
How Chapter 13 Claim Objection Works
If a creditor files an invalid claim in a Chapter 13, it is up to the debtor, the Chapter 13 Trustee, or some other party-in-interest to object to that claim.
Claim objections in bankruptcies can be filed both as “contested matters” as well as “adversary proceedings.”
Once the claim objection is filed with the court, the bankruptcy judgement will ultimately decide if the claim is valid or invalid.
The bottom line is that parties to a Chapter 13 need to carefully review all claims to ensure that only valid claims are paid. Special attention needs to be paid to the supporting documents that are filed with each claim to ensure that the debts are not time-barred.
I represent bankruptcy filers in Chapter 13 matters in Sacramento. Please contact my office at (916) 333-2222 to discuss whether Chapter 13 bankruptcy is right for you.
