Legal Definitions - claim in bankruptcy

A claim in bankruptcy is a formal legal request made by a creditor to a bankruptcy court, asserting that they are owed money or other performance by an individual or business that has filed for bankruptcy. This claim serves to establish the creditor's legal right to potentially receive a share of the bankrupt debtor's available assets or to be included in a repayment plan.

When a debtor files for bankruptcy, all their creditors must typically file a claim if they wish to recover any outstanding debts. The bankruptcy court then reviews these claims to determine their validity and priority, as not all claims are treated equally, and there may not be enough assets to pay everyone in full.

• Example 1: Business Supplier

  Imagine a small manufacturing company, "Widgets Inc.," files for Chapter 7 bankruptcy. "Steel Supply Co." had delivered a large order of raw materials to Widgets Inc. just before the bankruptcy filing, and Widgets Inc. still owes $50,000 for that order. To attempt to recover this debt, Steel Supply Co. must file a claim in bankruptcy with the court. This claim formally notifies the bankruptcy trustee and the court that Steel Supply Co. is a creditor seeking payment from Widgets Inc.'s remaining assets.

• Example 2: Individual Landlord

  Consider a tenant named Sarah who files for Chapter 13 bankruptcy. She owes her landlord, Mr. Henderson, $2,500 for two months of unpaid rent. To ensure his outstanding rent debt is acknowledged and potentially included in Sarah's court-approved repayment plan, Mr. Henderson files a claim in bankruptcy. This allows him to participate in the bankruptcy process and potentially recover some or all of the owed rent over time, according to the terms of Sarah's plan.

• Example 3: Unfulfilled Contractual Obligation

  A marketing agency, "Creative Campaigns," files for bankruptcy. A client, "Tech Solutions," had paid Creative Campaigns a $15,000 deposit for a new advertising campaign that was never launched due to the agency's financial collapse. Tech Solutions files a claim in bankruptcy not just for the return of their deposit, but also asserting their right to damages for the breach of contract. This demonstrates that a claim can encompass not only straightforward debts but also rights to payment arising from unfulfilled agreements or other legal obligations.