A claim in bankruptcy, in United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 bankruptcy

Bankruptcy

Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

 law

Law

Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...

, is a document filed with the Court so as to register a claim against the assets of the bankruptcy estate. The claim sets out the amount that is owed to the creditor as of the date of the bankruptcy filing and, if relevant, any priority status. Although a document called a Claim in Bankruptcy is used in proceedings in both Canada and the United States, in the United States, the document is properly termed a Proof of Claim. The form is different although they share many similar aspects.

Upon receipt of a claim, the Trustee in bankruptcy must notify the claimant (or creditor) whether the estate will object to the claim or whether it will, as is the default case, allow the claim.

Some of the reasons a creditor's claim may be objected to are that:

• the claim is not liquidated, such as a claim for damages for pain and suffering that is not the result of a judgment debt. This assertion is not fatal as the claim may be liquidated in Bankruptcy Court;
• the claim omits appropriate set-offs to which the bankrupt entity ("the debtor") is entitled by operation of law;
• the amount of the claim is in dispute, such as a bill for defective goods, in which case the matter may be litigated in Bankruptcy Court;
• the creditor is claiming a higher priority than they are entitled to, such as an ordinary creditor claiming priority to estate assets.

If a claim is objected to, the bankruptcy court may set a hearing and, if necessary, conduct a trial, in order to resolve the dispute.

There is usually a deadline (termed the Bar Date) for filing claims to allow the trustee to determine the distribution of any funds obtained from the liquidation

Liquidation

In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...

 of the estate. Claims are paid out first to administrative creditors, then to priority unsecured creditors according to their statutory priority, and finally to the non-priority unsecured creditors, with all claims paid pro rata with other members of the class.

Companies buy these bankruptcy claims. One such company is International Funding Corporation (Internationalfundingcorp.com) based out of the USA.