Recovering Debt: Attorneys vs. Collection AgencyIn certain cases, in order to receive a distribution in a bankruptcy case, it is incumbent upon the creditor to file a proof of claim. Filing a proof of claim is the first step in getting paid. Once the claim is filed, it is critical that the creditor monitor the bankruptcy, because there may be an objection to the claim lodged. A Chapter 7 trustee, or debtors-in-possession (in Chapter 11 cases), can object to a creditor’s proof of claim. In response to the objection, the creditor will need to file a response within fourteen (14) or twenty-one (21) days, depending upon the notice provided by the objecting party.

There are many reasons why a trustee or debtor-in-possession may file an objection to a creditor’s claim; however, it is critical that the objection be a valid reason under the Bankruptcy Code. Often times, objections are filed to claims because the claim is ‘secured’. Even though the creditor has security for its claim, that fact alone is not the end of the inquiry.

The existence and enforceability of the debt to a creditor, in a Chapter 7 bankruptcy case, is governed by state law. 11 U.S.C. § 502(b)(1) (a claim cannot be allowed if it is not enforceable under state law). In re Miller, 292 B.R. 409, 412 (9th Cir. BAP 2003). A claim may not be denied for just any reason, but only for one of the reasons Congress has included in §502(b). In re Taylor, 289 B.R. 379 (Bankr. N.D. Ind. 2003). An objection to a claim, based only on the fact that the claim was filed as a secured claim, does not meet any of the exceptions under § 502(b) and does “nothing to undermine the prima facie validity of either the creditors’ right to payment or the amount they say was due on the date of the petition.” In re Muller, 479 B.R. 508 (Bankr. W.D. Ark. 2012) citing to In re Taylor, 289 B.R. at 385.

In determining allowance of claims, the Court “must find a basis in section 502 to disallow a claim, and absent such basis, we must allow it.” In re SNTL Corp., 571 F.3d 826, 838 (9th Cir. 2009); In re Rodriguez, 375 B.R. 535, 545 (9th Cir. BAP 2007), citing Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 452, 127 S. Ct. 1199, 1206, 167 L. Ed. 2d 178 (2007) (“we generally presume that claims enforceable under applicable state law will be allowed unless they are expressly disallowed” under section 502).

The attorneys at Windtberg & Zdancewicz, PLC provide clients with experienced legal representation in all litigation and bankruptcy matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.