Legal Definitions - creditor's claim

A creditor's claim is a formal legal document submitted by an individual or organization (the "creditor") to a court, asserting that money is owed to them by another party (the "debtor"). This claim is typically filed during specific legal proceedings, such as when a person has passed away (probate) or when an individual or business is unable to pay their debts (bankruptcy).

The primary purpose of filing a creditor's claim is to officially notify the court and all other involved parties about the existence and specific details of the debt. It usually includes information about how the debt originated, the exact amount owed, and supporting evidence. By filing a claim within the court-mandated deadline, the creditor ensures their debt is formally recognized and considered when the debtor's available assets are distributed. If a creditor fails to file a timely and properly substantiated claim, they risk losing their opportunity to receive any payment, as the available assets may be distributed to other creditors or beneficiaries.

• Example 1: Probate Proceedings
  When Mr. Henderson passed away, he left behind an unpaid medical bill for a recent hospital stay. The hospital, as a creditor, would file a creditor's claim with the probate court handling Mr. Henderson's estate. This claim would detail the services provided, the amount owed, and include copies of the invoices. By doing so, the hospital formally requests payment from the assets of Mr. Henderson's estate before they are distributed to his heirs.
• Example 2: Corporate Bankruptcy
  "Tech Innovations Inc." declared bankruptcy after several years of financial losses. One of its suppliers, "Global Components LLC," was owed $50,000 for a large shipment of circuit boards delivered just before the bankruptcy filing. To recover this debt, Global Components LLC would file a creditor's claim with the bankruptcy court. This claim would outline the unpaid invoices and the delivery records, allowing Global Components to be included among the creditors who might receive a portion of Tech Innovations Inc.'s remaining assets.
• Example 3: Individual Bankruptcy
  Ms. Rodriguez filed for personal bankruptcy due to overwhelming credit card debt and a job loss. One of her creditors was "City Bank," which held a personal loan she had taken out. City Bank would file a creditor's claim with the bankruptcy court, providing documentation of the loan agreement and the outstanding balance. This action ensures that City Bank's debt is formally acknowledged by the court and considered during the process of distributing Ms. Rodriguez's non-exempt assets to her various creditors.