By Ryan C. Wood

In certain bankruptcy cases the companies or people you owe money to are asked to file a proof of claim or should file a proof of claim in the hope of being paid a portion or all of the debt owed to them. If you filed a Chapter 7 case and all of your assets cannot be protected by bankruptcy exemptions then you have an asset Chapter 7 case. The Chapter 7 trustee assigned to the case will send out a notice of possible dividends, which means there is a possibility of creditors receiving money from the bankruptcy estate in the bankruptcy case. If you file a Chapter 13 case then your creditors should always file a proof of claim to be paid pursuant to the Chapter 13 plan filed. In Chapter 13 cases a creditor may not receive anything, but still should file a proof of claim just in case.

Bankruptcy Code Section 101(9)(A) defines a “creditor” as any “entity that has a claim against the debtor at the time of or before the order for relief.” A “claim” is a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, secured, or unsecured.” 11 U.S.C. § 101(4)(A). A “claim” also can be a “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment.” 11 U.S.C. § 101(4)(B). See In re Beugen, 99 B.R. 961, 963 (9th Cir. B.A.P. 1989)

Who Are These Companies Filing Proofs of Claims in My Bankruptcy Case

I Do Not Recognize Any of the Creditor Names

Once creditors start filing their proofs of claims you may not recognize any of the names of the creditors because the original debt was sold or transferred to a third party. This is normal and quite common. Each proof of claim is supposed to provide who the original creditor was and have the assignment or transfer documents attached to the proof of claim so that you can determine if you actually owe the money or not. If the claim does not provide proper documentation as to how it was calculated your bankruptcy attorney should object to the claim.

Debts Cannot be Purchased for Improper Purposes Though

See In re Beugen, 99 B.R. 961 (9th Cir. B.A.P. 1989), aff’d, 930 F.2d 27 (9th Cir. 1991) regarding a creditor purchasing claims for an improper purpose. In this case the creditor, Young, was more or less buying claims so that he could harass the debtors, the Beugens. Young apparently had no intention of just collecting on the underlying debts of the purchased claims. In this case Young originally filed an adversary complaint against the Beugens arguing fraud resulting from the sale of a salon from the Beugens to Young. The complaint was dismissed and then Young filed a motion to dismiss the Beugens’ corporate Chapter 11 and their personal Chapter 11 cases. The court agreed with Young and dismissed the corporate Chapter 11 but the court did not dismiss the personal Chapter 11 case. Eventually the court did convert the Beugens’ personal Chapter 11 case to a case under Chapter 7 of the Bankruptcy Code. Here is where Young went wrong though. The first claim Young purchased was a claim totaling $753.38 from a small claims judgment. A balance of only $374.47 remained on this claim at the time Young purchased it from the original creditor. Young acquired another claim totaling $5,000. Both of these claims were solicited and assigned after the Beugens filed their Chapter 11 case. Young proceeded to file another adversary complaint objecting to the Beugens under the claims he had purchased. The Beugens bankruptcy lawyer argued that since Young was not the original holder of these two claims that Young did not have the right to object to the Beugens discharge under 727 of the Bankruptcy Code. The court in Beugen provides in part that “the right to object to a debtors discharge is not a marketable commodity which may be purchased by one party from another in order to inflict punishment and discomfort upon a debtor.”

Purchasing a claim is perfectly normal and acceptable if the underlying motivation is to seek payment of the claim. If a claim is purchased for other purposes such as objecting to the discharge of the debtor a party should think twice before proceeding. Mr. Young was ordered to pay the attorney fees and double costs of the Beugens pursuant to Federal Rule of Appellate Procedure 38. A very expensive mistake.