Filing for bankruptcy can leave your creditors out in the cold—but it isn’t always true. Money will be available for creditors when:

• the bankruptcy trustee sells assets in a Chapter 7 bankruptcy case, or
• when a bankruptcy filer makes payments through a Chapter 13 repayment plan.

A creditor can request payment by filing a claim. However, a bankruptcy filer, trustee, or another creditor who doesn’t agree with the claim can object—as long as they have that right, that is.

In this article, you’ll learn who has the right to object to a claim and when it makes sense to do so.

When a Creditor Must File a Proof of Claim

After you file your bankruptcy case, the court clerk will send a notice to all listed creditors explaining whether funds are available for creditors. The notice will describe the case as either an “asset case” or a “no asset case,” and include other information, such as the date of the 341 meeting of creditors (the hearing all filers must attend).

Most cases are “no asset” cases. Money isn’t available for creditors. They won’t need to make a claim unless notified that funds became available.

If the case is an “asset case,” money is available to pay creditors. The notice will include a date by which creditors must file a Proof of Claim form that includes the following information:

• creditor name
• debt amount
• type of claim (such as whether it’s secured by collateral (mortgages, car loans) or a priority claim that gets paid before other debts (taxes, domestic support obligations), and
• a copy of an invoice, contract, or other written documentation proving the validity of the debt.

You can view a copy of the Proof of Claim (Form 410) by visiting the U.S. Court’s website.

Who Can Object to a Creditor’s Claim?

The court allows the bankruptcy trustee—the person charged with finding and distributing assets to creditors—to pay all claims unless someone files an objection. However, only a “party in interest” has the right to object.

To be a party in interest, you must have “standing,” or a financial stake in the claim. The most common interested parties include the person filing for bankruptcy (or business), the trustee, or another creditor.

Here are examples of interested parties commonly found in bankruptcy cases.

• Creditors. In most Chapter 7 and Chapter 13 cases, the trustee divides the available money among multiple claims. If the court were to deny one claim, the other creditors would likely receive more money. A creditor who would stand to gain from another creditor’s denied claim will have standing to object to a claim.
• A Chapter 7 bankruptcy filer. The bankruptcy filer will have standing only if the objection could affect how much the debtor is left owing creditors after bankruptcy, or if money would be returned to the filer after the case. If all of the filer’s debts would be discharged (wiped out), and no money would be returned, the filer won’t have standing.
• A Chapter 13 bankruptcy debtor. A Chapter 13 filer will almost always have standing to object to a claim in a Chapter 13 case because the debtor’s future earnings fund the Chapter 13 plan. One less claim might mean the filer will put less money into the repayment plan or that the plan can be shorter in duration.

Example 1. Suppose that you filed for Chapter 7 bankruptcy and that $1,000 is available to pay claims. You owe $1,300 to your cell phone provider, $1,000 for a payday loan, and $5,000 for a six-year-old department store account. In this situation, all three of your creditors have standing to object to a claim of one of the others, because if successful, the other two creditors would receive a larger portion of the $1,000. You, on the other hand, would have standing only if the dispute would lower your creditors’ claims enough to return some part of the $1,000 to you.

Example 2. Suppose instead that you filed a Chapter 13 case and your plan proposes to pay your creditors 10% of their claims. If a creditor claims that you owe $10,000 when you only owe $2,000, you can object. If the court agrees, that creditor will receive only $200 instead of $1,000, saving you $800.

How Do You Object to a Creditor’s Claim?

After a creditor files a claim, you can review it to make sure that you agree with the reported information. If you disagree with anything, you can file a written objection stating why the court shouldn’t allow the claim.

Here are a few common objections:

• the creditor doesn’t have the right to make the claim
• the claim is for the wrong amount
• the filer already paid the claim
• the creditor wrongfully claims a debt deserves priority (see Nondischargeable Debts: Debts You Can’t Discharge in Bankruptcy), or
• the creditor failed to attach proof to support the claim.

You’ll file the objection with the court, along with a “notice” that tells the creditor, the trustee, and the debtor the date the court will hear the matter. Finally, you’ll file a “proof of service” stating that you served both the notice and objection on everyone involved.

What Will Happen at the Hearing?

At the hearing, the judge will decide whether to allow, deny, or modify the claim in some manner.

If the creditor doesn’t file a response or fails to appear at the hearing, the judge will deny the claim. If the creditor files a response, the judge will usually give you an opportunity to file a written reply and set a new hearing date for the objection.

The hearing might include presenting evidence and witnesses. However, the judge will often rule based upon the written documents submitted by each side.

Consult With a Bankruptcy Lawyer

Objecting to claims is a complicated process that requires an understanding of both the law and your local court procedures. If you need to object to a claim, you should strongly consider retaining the services of a bankruptcy attorney.