A short time back I discussed what a proof of claim is in a New York bankruptcy: documents that creditors file with the bankruptcy court to show that they’re entitled to distributions from the bankruptcy estate. A similar document is called a “notice of transfer of claim.” What are these, and how do they differ from proofs of claims?
A notice of transfer of claim is what creditors file when they buy debts from other creditors holding debts owed by a debtor in bankruptcy. For example, if the debtor lists a debt owed to Bank A in a chapter 13 bankruptcy petition, then Bank A will file a proof of claim with the bankruptcy court. However, if Bank A sells the debt to Bank B, then Bank B will file a notice of transfer of claim with the bankruptcy court to prove that it’s entitled to the distribution from the bankruptcy estate that formerly went to Bank A. So there’s the difference: Original creditors file proofs of claims; subsequent debtors file notices of transfer of claims.
Selling debts while in bankruptcy raises the question of why banks would bother when they’re being repaid in chapter 13. Sometimes they decide that they want to be paid up front and get out of the process, even if it means selling the debt at a discount. Other times it doesn’t want to worry about taking a charge-off on the debt if it’s discharged, or it doesn’t want to deal with the risk of the debtor being unable to complete the chapter 13 repayment plan.
Once debtors learn of a notice of transfer of claim, what should they do? The answer is to just tell your lawyer, if he or she doesn’t already know, but otherwise nothing. Creditors like Bank B in the example are just as entitled to the distribution from the bankruptcy estate as Bank A or any other creditor. On the other hand, you should go over the claim with the other claims filed in your case because sometimes the banks mess up. Some notices of transfer of claims are filed erroneously, like duplicate claims, claims that are barred by a statute of limitations, claims filed in the wrong cases. If there is a problem, then you can have your bankruptcy lawyer object to the claim. The remedy may result in the claim being reduced, reclassified, or disallowed.
Hiring an experienced New York bankruptcy lawyer will help protect you from problems with claims filed by 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 bankruptcy automatic stay Bruce Weiner for a free initial consultation.
