The bankruptcy procedure requires you to categorize your debts or “claims” as contingent, unliquidated, or disputed. You’ll need to be familiar with these phrases in order to properly identify and categorize your debts on the various bankruptcy forms.
In a bankruptcy, You Must List All Debts or “Claims”
You describe your financial condition to the court, trustee, and creditors on your bankruptcy filings. Your financial information will be disclosed, along with your monthly budget, real estate and personal property holdings, debts or “claims” you owe, income, and recent real estate transactions.
When listing claims in your documentation, you must include the name, address, and amount owed to each creditor. Find out how to fill out bankruptcy forms.
Not Every Bankruptcy Debt Is Conditional, Unliquidated, or Contestable
Because the label is only necessary if it is unclear whether you owe the loan, the majority of debts won’t require a contingent, unliquidated, or contested label. There will almost always be no doubt that you owe the money. You won’t need to describe the claim as contingent, unliquidated, or contested if you don’t have a defense to use to avoid paying the debt.
Consider the scenario when you have a car loan that is past due. The claim would then be for the remaining sum. Other common responsibilities, like credit card debt, would follow the same rules.
Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority explains additional claim classifications that you should be aware of.
When a Contingent, Unliquidated, or Disputed Debt Will Arise
Sometimes it’s difficult to determine how much money you owe a creditor. Each of the labels—contingent, unliquidated, and disputed—identifies a specific problem that must be fixed before the claim may be paid.
Maybe how much you owe will rely on what someone else does, or maybe it won’t. Alternatively, you and the creditor may differ on the amount you owe.
If there is an issue, you should note it when filing the claim on your bankruptcy papers under the relevant heading of contingent, unliquidated, or contested claim (the form provides checkboxes for these designations).
A contingent claim is what?
Payment of the claim is subject to a future occurrence that may or may not take place. For example, if you cosigned a secured loan (like a mortgage or auto loan), you aren’t liable for paying it until the other cosigner defaults. Your responsibility as a cosigner depends on the default.
An Unliquidated Debt Is What?
There are times when you owe money but are unsure of how much. Although the precise amount of the debt hasn’t been established, it might exist. Let’s take the example of a lawsuit you filed against someone for injuries you had in a car accident. Your attorney has accepted the case on a contingency basis; if you win, the attorney will receive a third of the recovery; if you lose, the attorney will receive nothing. The debt owed to the attorney is unpaid. The amount of the attorney’s fee won’t be known until the case is settled or won at trial.
A Disputed Debt Is What?
You will tick this box if there is a discrepancy between the amount you owe and what you owe, if anything at all. Consider a scenario in which the IRS has an involuntary tax lien on your property and claims that you owe them $10,000. On the other hand, you think you just owe $500. You should state that the claim is disputed and include the total amount of the lien rather than the amount you believe you owe (you can clarify how much you believe you owe in the notes).
In Bankruptcy, You Must List All Claims
For a variety of reasons, it’s typical for someone to desire to exclude a claim from the bankruptcy petition. You cannot succeed. All claims, including those you believe you owe and those that others think you owe, must be listed.
It’s ideal for you to do that. Even if it would typically be considered a dischargeable debt, if you don’t list a claim, it might not be eliminated or “discharged” in your situation.
Claims Payment in Bankruptcy
Following the payment of creditors, the following will take place:
Creditors will be notified by the bankruptcy trustee assigned to the case that it is a “asset case.”
In order to get a portion of the available funds, a creditor must submit a proof of claim form by a specific deadline.
The claims will be examined by the trustee, who will then pay them in accordance with bankruptcy law’s priority payment system.
But keep in mind that every circumstance is different. Consult with an experienced bankruptcy lawyer if you are unclear about what will happen to the claims in your bankruptcy case.