Challenge Claims

Posted by Kevin on January 15, 2012 under Bankruptcy Blog | Be the First to Comment

If you file a bankruptcy under Chapter 7 and the case has assets to distribute (not a no asset case) or you file a Chapter 13 case, creditors are required to file a proof of claim to participate in the bankruptcy.

The burden is on the creditor to file before the bar date and provide sufficient backup to justify the claim.  In today’s marketplace, however, many claims are sold to hedge funds or other companies for pennies on the dollar.  In many cases, these claim purchasers do not have any backup to support their allegation that they have a claim.  If challenged, the claim can be expunged and the creditor is SOL.

In a recent Nebraska case, debtors scheduled a Chase credit card and a United Mileage Plus credit card because they appeared on the debtor’s credit report.  But they were scheduled as “disputed” (Good idea to dispute claim if you are not sure if right creditor or you challenge the amount sought).  eCast, a purchaser of the debt, filed a proof of Claim (POC) for both debts.  eCast attached account statements showing the debtor’s address and that payments had been made.  On the date of the hearing, only the debtor showed and testified.  He said that he never had a Chase account and closed out his United account with a zero balance in 2002.  He claimed that he may have been the victim of identity theft.

The court found the debtor’s testimony sufficient to overcome prima facie validity of POC’s.  Ct said that eCast could not produce copy of credit card application.  Nothing eCast  produced had debtors’ signatures.  ECast could not produce a cancelled check.  ECast never subpoened the debtors’ bank records.  Therefore, according to court, eCast did not prove its claim.

The lesson is that purchasers of debt cannot rely on incomplete circumstantial evidence to support a claim.  The lesson to a debtor is to challenge claims aggressively.  More claims than you think will not hold up.