"Claim" in bankruptcy is defined as: (A) a right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (B) a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured. 11 U.S.C. § 101(5). "Debt" is defined as a liability on a claim. 11 U.S.C. § 101(12). Claims "arise" for bankruptcy purposes when (1) all "transactions" or acts necessary for liability occur, and for government claims, (2) there is some prepetition relationship, "such as contact, exposure, impact, or privity" between the United States and the debtor such that the government is able to "fairly contemplate" that it might have a claim against the debtor. See Epstein v. Official Committee of Unsecured Creditors of Estate of Piper Aircraft Corp., 58 F.3d 1573 (11th Cir. 1995); Lemelle v. Universal Mfg. Corp., 18 F.3d 1268, 1274-77 (5th Cir. 1994); In re Jensen, 995 F.2d 925 (9th Cir. 1993); In re Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991). A claim arises regardless of enforcement efforts (i.e., future litigation) or of whether the claim is contingent, unliquidated, or unmatured when the petition is filed. See In re Stewart Foods, Inc., 64 F.3d 141, 146 (4th Cir. 1995) ("[T]hat the payments became due after the bankruptcy filing does not alter the conclusion that the payments are pre-petition obligations."); Chiasson v. J. Louis Matherne & Assocs. (In re Oxford Mgmt., Inc., 4 F.3d 1329, 1335 n.7 (5th Cir. 1993) ("A claim is not rendered a post-petition claim simply by the fact that time for payment is triggered by an event that happens after the filing of the petition."); United States v. Gerth, 991 F.2d 1428, 1433 (8th Cir. 1993) ("[D]ependency on a postpetition event does not prevent a debt from arising prepetition."); Braniff Airways v. Exxon, 814 F.2d 1030, 1036 (5th Cir. 1987) ("The character of a claim is not transformed from pre-petition to postpetition simply because it is contingent, unliquidated or unmatured when the debtor's petition is filed."). See Creditor's Claims in Bankruptcy Proceedings, Civil Resource Manual at 63 et seq Civil Resource Manual at 63.
A. Preparation of Claims. If a government claim exists, the agency must file a proof of claim to receive a distribution. See Fed. R. Bankr. P. 3002. However, if the claim arose postpetition and has administrative expense status, compensation may have to be sought through the application process. See Fed. R. Bankr. P. 2016. Normally, the client agency prepares the proof of claim. However, if necessary to avoid a time bar, the USA should prepare and file the proof of claim. Even if the exact amount of the claim is not known or has not been determined pursuant to required administrative proceedings, a proof of claim should be filed; it can be amended later.
B. Filing of Claims. The bar date establishes the date by which proofs of claim must be filed against the estate. The bar date is similar to a statute of limitations and must be strictly observed. In re Keene Corp., 188 B.R. 903, 907 (Bankr. S.D.N.Y. 1995). Claims of the government must be filed within 180 days after the petition is filed or a later date set by the court. Filing a proof of claim is analogous to filing a complaint in a civil action for purposes of litigation authority. Creditor agencies may file if the agency has litigation authority or by arrangement with the Department of Justice (DOJ), e.g., IRS Special Procedures function for filing tax claims, or in an emergency. The USA should sign the proof of claim as counsel for the claimant. Appearing in the proceeding enables the USA to receive notices which may affect the rights of the client agency. The proof of claim is a "written statement" which "shall conform substantially to the appropriate Official Form." Fed. R. Bankr. P. 3001(a); see Official Form 10 (Rev. 6/91). To preclude possible inadvertent waiver of rights, DOJ recommends that any government proof of claim contain a statement to the following effect:
This claim reflects the known liability of the debtor to this agency of the United States. The United States reserves the right to amend this claim to assert subsequently discovered liabilities. This agency holds subject to setoff against this claim a debt owed to the debtor of _____________ (amount). The identification of any sums held subject to setoff is without prejudice to any other right under 11 U.S.C. § 553 to set off against this claim debts owed by this or any other Federal agency.
See Creditor's Claims in Bankruptcy Proceedings, Civil Resource Manual at 63; Civil Resource Manual at 63 Setoff and Recoupment in Bankruptcy, Civil Resource Manual at 65 Civil Resource Manual at 65 - 67.
Copies of the documents evidencing the government's claim, including its lien position if applicable, should be attached with a certified statement of account showing the amount owing on the petition date. Fed. R. Bankr. P. 3001(c), (d). The agency should prepare a Claims Collection Litigation Report where necessary. See 4 C.F.R. § 105.2. If the amount of the claim changes, the proof of claim should be amended. Amendments to proofs of claim should be freely permitted, and amendments not creating new or additional claims may be filed after the expiration of normal time limits. See Woburn Assocs. v. Kahn (In re Hemingway Transp., Inc.), 954 F.2d 1 (1st Cir. 1992); In re Unroe, 937 F.2d 346 (7th Cir. 1991).
C. Priority of Government Claims. Priority unsecured claims include administrative expenses under 11 U.S.C. § 503 and several other categories of unsecured claims that receive priority in distribution of estate assets. See 11 U.S.C. § 507. A "superpriority" may be triggered by a failure of adequate protection, 11 U.S.C. § 507(b), or may be authorized as an inducement to provide postpetition financing, 11 U.S.C. § 364(c). Priority claims are paid ahead of general unsecured creditors but may not be paid out of encumbered assets absent secured creditor consent or application of 11 U.S.C. § 506(c). See Gravel, Shea & Wright, Ltd. v. Bank of New England (In re New England Carpet Co.), 744 F.2d 16, 17 (2d Cir. 1984); General Elec. Credit Corp. v. Levin & Weintraub (In re Flagstaff Foodservice Corp.), 739 F.2d 73, 76 (2d Cir. 1984); Matter of Trim-X, Inc., 695 F.2d 296, 301 (7th Cir. 1982).
D. Allowance of Claims. A properly filed proof of claim is prima facie evidence of the validity and the amount of the claim. Fed. R. Bankr. P. 3001(f); see 11 U.S.C. § 502(a) (claim deemed allowed absent objection); In re White, 168 B.R. 825, 828-29 (Bankr. D. Conn. 1994). Claims scheduled as undisputed, fixed, or liquidated in chapters 9 and 11 are allowed even if no proof of claim is filed. Fed. R. Bankr. P. 3003. A "party in interest" may object to the proof of claim. 11 U.S.C. § 502. This becomes a "contested matter." See Fed. R. Bankr. P. 9014. If the objection is joined with a demand for relief of the kind specified in Federal Rule of Bankruptcy Procedure 7001, it becomes an adversary proceeding. Fed. R. Bankr. P. 3007. Once the objector produces some evidence (the mere filing of an objection is insufficient) disputing the validity of a claim, the burden shifts to the claimant. The claimant bears the ultimate burden of establishing a valid claim by a preponderance of the evidence. In re South Motor Co., 161 B.R. 532, 547 (Bankr. S.D. Fla. 1993).
E. Secured Claims. Secured claims are defined as including "liens," 11 U.S.C. § 101(37), "security," 11 U.S.C. § 101(49), "security interest," 11 U.S.C. § 101(51), "security agreement" 11 U.S.C. § 101(50), and "secured claim," 11 U.S.C. § 506(a). An allowed claim secured by a lien on property in which the estate has an interest, or that is subject to setoff, is a "secured claim" to the extent of the value of the creditor's interest in the estate's interest in the property, or the amount subject to setoff. 11 U.S.C. § 506(a). A secured claim carries the right to "adequate protection" of collateral. 11 U.S.C. §§ 361-364; see United Sav. Ass'n v. Timbers of Inwood Forest Assocs., 484 U.S. 365 (1988). Unavoided liens survive bankruptcy, see 11 U.S.C. § 506(d)(2); Matter of Tarnow, 749 F.2d 464 (7th Cir. 1984); but circumstances may demand action by a secured creditor to protect the lien. See The Government as Secured Creditor, Civil Resource Manual at 68 Civil Resource Manual at 68.
F. Discharge of Debtor. Generally, discharge will extend to all claims arising before the petition date in a liquidation, 11 U.S.C. § 727(b), or before plan confirmation, 11 U.S.C. §§ 944(b), 1141(d), or that are provided for by the plan, 11 U.S.C. §§ 1228(c), 1328(c).
[updated November 1998] [cited in JM 4-4.410]