Does This Debt Really Exist? Proof of Claim and Dubious Creditors

When people file for bankruptcy, one benefit that brings a lot of relief is the “automatic stay.” The stay temporarily stops creditors from pursuing the action of collecting money or seizing property. Creditors are persistent in getting payments from debtors. With constant phone calls from different numbers and letters being sent to a debtor, it may seem that creditors don’t have to answer to any authority. But, despite how it may seem, the validity of the debt is something creditors have to answer to. Although creditors will aggressively come after people for debt, in some cases the debt they are chasing after isn’t collectible, especially in bankruptcy cases

What Is a Proof of Claim? 

A proof of claim is a form that creditors must submit in order to receive their share of money from a person’s bankruptcy proceeding. The document will give notice of the claim to all parties involved in the bankruptcy case. When a proof of claim is submitted it ensures that the creditor’s money that is owed to them is seen by the trustee appointed for the person’s bankruptcy case. The creditors will need to meet the deadlines to make sure they are included in the bankruptcy proceedings. The deadline for creditors is 70 days after the bankruptcy filing date. If the creditors are government agencies, the deadline is 180 days. 

Bankruptcy is meant to help people who don’t have the means to pay back all their debts. In most bankruptcy cases, there will be a discharge of at least some of a person’s debts – meaning the person is no longer personally liable for those debts. So, even if the creditor submits the necessary documentation, it doesn’t necessarily mean their amount owed will be paid in full. The proof of claim states they have a valid claim to access the debtor’s funds in the bankruptcy proceedings. However, priority debts will have access to the funds first. Priority debts are the most urgent debts that the person must pay off in their bankruptcy case. Those debts can include child support, alimony, and taxes. 

The Proof of Claim, otherwise known as form 410, must be filled out and signed by the creditors, creditors’ attorneys, and an authorized agent. In the form they must include: 

  • Name of the debtor and the bankruptcy case number 
  • Creditors’ information and address 
  • Amount owed by the debtor 
  • What type of claim is it (secured or unsecured) 
  • The basis for the claim 

Each court is different and some courts may allow an informal Proof of Claim if certain requirements are met: 

  • It must be in writing 
  • Includes a demand against the bankruptcy estate 
  • Indicates they intend to hold the estate liable 
  • They filed the informal claim with the bankruptcy court

Before filing for bankruptcy, it is always good to gather all your financial information and review it. Doing this with an attorney will give you an advantage before filing a bankruptcy proceeding and help in determining the right bankruptcy chapter to file. 

What Happens When My Debt Is Sold? 

It may come as a surprise that creditors often have a hard time proving that an individual actually is responsible for a particular debt. A big reason it’s difficult to prove what a person owes is because debt has been sold off to other agencies. Usually, a company that is owed money will try to contact the customer to retrieve the money. They turn over accounts to collection agencies or debt buyers when they are unsuccessful in getting the money from a person. A debt buyer will purchase debts in bulk, often for a fraction of their value. They will then go after the person to pay back their debt. 

Many debts can be turned over to a collection agency. Those debts include: 

  • Credit cards 
  • Phone debts 
  • Auto loans
  • Medical bills
  • Utilities

To make matters worse, debts can be sold multiple times over a period of years. This process can result in pertinent information getting mixed up or not passed along to the new holder of the debt.  Some debts have been sold so many times that the relevant information about the debtor actually gets lost. Sometimes agencies may have incorrect information or lack information on the original debt. This is more likely to occur when a debt is bought from another collector and not the original creditor. If a creditor cannot prove that a debt is actually owed by you, they cannot collect on it.

Knowing your rights will help you fight creditors who think they are above the law. 

What Are My Rights with Creditors? 

It’s important to know the laws before and after you file for bankruptcy. The federal Fair Debt Collection Practices Act (FDCPA) became effective in 1978.  This law was created to stop creditors from engaging in abusive and deceptive debt collection practices. 

Unlawful Tactics Under FDCPA

  • Communications with third parties are mostly prohibited. The definition of a third party is someone who isn’t involved in a dispute or agreement. Examples include friends, family members, employers, and co-workers.  There are exceptions to this rule. If you are represented by an attorney, the collectors will only talk to the attorney about the debt. 
  • A collection agency can’t make calls to you all day long. There are hours they must abide by. Those hours are between 8 AM and 9 PM. Any calls outside of those times are illegal. They can’t call you at work if they know the employer prohibits those calls. If they do call, they should be informed that the employer does not allow those calls. 
  • Harassment and abuse are against the law. They can’t threaten you or use profane language toward you in an attempt to collect the debt. 
  • The law prohibits debt collectors from calling a person with the intent to annoy, harass, and abuse a debtor. There isn’t a federal law that mandates a specific amount of phone calls that can be made to a person. However, the general rule is that a collector can’t call more than seven times within seven consecutive days. 

When debt collectors break the FDCPA rules, there are actions one can take. If a person wants to seek damages from their collector for breaking the law, they can sue them in federal court. The lawsuit has to be filed in federal court and must be filed within one year of the original date the collector broke the laws. If you win, you will be awarded damages. 

Another option is reporting them to the Federal Trade Commission (FTC). A person can report a creditor by filing a consumer complaint. If the agency finds the claim to be credible, it has the authority to take action against the creditor. 

Objecting to a Proof of Claim

If you have filed for bankruptcy and creditors are making a Proof of Claim for your case, you still have a right to object. When you object, be mindful that the burden of proof shifts to you. A case must be made to prove you shouldn’t have to pay them. 

Reasons to Object a Proof of Claim

  • There isn’t adequate documentation to prove that you owe that debt 
  • There is an error in the amount of the claim
  • The debt isn’t yours
  • If creditors file the same claim more than once
  • The claim has incorrect amounts for both the fees and interest amounts 
  • If the claim is classified incorrectly (This could happen if the debt is classified as a priority but is actually a non-priority debt.)

When you object to a Proof of Claim, it must be in writing and filed with the bankruptcy court. There must be a copy of the objection. The court hearing date will need to be mailed to the creditor, trustee, and debtor at least 30 days before the hearing. The objection will be upheld if the creditor chooses not to respond to the objection. However, if they do respond then it will go to court. The bankruptcy judge will either uphold the objection or dismiss it. 

Debt collectors can seem invincible, but it is possible to take them down. Encore Capital Group and Portfolio Recovery Associates, which are two large debt buying companies, were hit with multi-million dollar fines back in 2015. Both companies collected improper debts from people and used illegal tactics, such as harassing phone calls and representing themselves as attorneys. Because of consumer complaints exposing both companies for not verifying debts, Encore Capital Group had to refund $42 million to consumers and Portfolio Recovery Associates gave back $19 million to consumers. 

This is why having an attorney review all of your debts is a must. Reviewing proof of claims will help to ensure that only debts you actually owe, in the right amounts, are included in a bankruptcy case. 

Where to Find Help

For most people, creditors can be tough to deal with. Hiring and working with an experienced attorney is a great way to deal with creditors and shift some of the stress away from you. They will also know both federal and state laws, giving you the best chance to combat creditors. Our attorneys at Rosenblum Law are ready to take on your creditors and provide the best outcome for your individual situation. Give us a call today for a free consultation to get the process underway.

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