The Bankruptcy Code frequently uses the term “claim” when referring to a creditor’s right to demand payment from the bankruptcy estate. This term sounds so generic that it might be mistaken for the word’s general meaning in everyday language. It’s not, and the Bankruptcy Code specifies what a “claim” is quite clearly:
The Bankruptcy Code’s definitions statute, section 101(5), defines a claim as a both a “right to payment” and a “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment.” These dual definitions are followed by a number of “whether or not” qualifiers, which are very important because bankruptcy treats different types of claims differently. For instance, debtors might find some types of claims easier to discharge than others. The following are types of claims:
- Reduced to judgment: This means that the creditor has taken the debtor to court, demanded payment on the claim, and received a court order authorizing recovery. For most debtors, this is what happens when debt collectors sue debtors. Bankruptcy gives claims of creditors who have judgments against debtors higher priority. (Read about “priority claims” here.)
- Liquidated versus unliquidated: A liquidated claim is one that has a known dollar amount attached to it. An unliquidated claim does not, e.g. a tort case against a debtor.
- Fixed: The claim is for a specific amount of money. This is similar to a liquidated claim.
- Contingent: These are claims that spring into being once a triggering event occurs, such as a lawsuit that may result in the debtor owing another party money in the future. The claim is “contingent” on the results of the litigation. (Read about “contingent claims” here.) Most claims in bankruptcy are noncontingent, but they count in bankruptcy nonetheless.
- Matured versus unmatured: Maturation of a claim refers to whether a specified payment date for the claim has been reached. Matured claims are past their payment dates, and unmatured claims are not at their payment dates.
- Disputed versus undisputed: When debtors disagree with creditors that they owe the debts, they’re disputed, when they agree, they’re undisputed.
- Legal versus equitable: These are classic terms in law. Legal claims are usually demands for money; equitable claims are usually rights to have someone do or stop doing something that’s unfair or impinges on the claimant’s (here the creditor’s) rights. Often equitable claims are resolved with injunctions.
- Secured versus unsecured: Secured claims are those for which a piece of tangible property is promised as collateral for the loan, e.g. mortgages. Secured loans come with liens on property. Unsecured claims are free of loans, like credit-card debts. There can be overlap between the two, for example a mortgagee-creditor might have a lien on a debtor’s property, but if the loan is worth more than the property, then it’s unsecured to the extent the loan is underwater. Secured claims receive higher priority than unsecured claims.
The number of claims against a debtor might be more than the debtor expects. Some claims, especially noncontingent, unliquidated, or equitable claims might exist without the debtor knowing about them. Consequently, if you are experiencing financial difficulties than talking to an experienced New York bankruptcy lawyer can help you ensure you don’t go into bankruptcy without knowing about all your creditors.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.