A bankruptcy court must sometimes estimate a claim for the purpose of confirming a bankruptcy plan. A claim in bankruptcy is either of the following:

  • A right to payment
  • A right to a court ordered remedy

The bankruptcy court will estimate some claims if the fixing or liquidation of the claim will cause a long delay in the administration of the case.

Converting Claims to Dollars

Claims estimation is a challenge for bankruptcy courts because claims must be fixed to reorganize or liquidate a debtor, but there may not be enough time to allow the claims process to settle the exact amount. Estimation allows the court to quickly determine the maximum amount of a claim that must be paid from the bankruptcy estate. The purpose of claims estimation is to have all claims against the debtor converted to dollar amounts.

Contingent and Unliquidated Claims

Contingent and unliquidated claims may be estimated. Contingent claims are claims that may be owed under certain circumstances, such as when a debtor is a cosigner on another person's loan and that person does not make the loan payments.

Unliquidated claims are claims that are owed but the specific value of the claim has not been determined. A claim is not considered to be contingent or unliquidated simply because it is disputed by the debtor.

If a contingent or unliquidated claim cannot be fixed or liquidated within an appropriate time frame, the court is required to estimate the claim for the purpose of fixing the claimant's right to share in the assets of the debtor. Contingent claims may be asserted against the assets of the debtor and are to be estimated before a distribution of the debtor's assets.

Estimation Procedure

The Bankruptcy Code doesn't set out procedures for estimation proceedings. This means bankruptcy courts have broad discretion and can tailor the process to the needs of individual cases. Typically, an estimation proceeding is a simplified procedure without live testimony.

Proof of Claim

A proof of claim is a written statement that sets forth the creditor’s claim. It must conform substantially to Official Form 10. Completing the proof of claim form is not difficult, but it must be done carefully to avoid mistakes that could give the trustee or the debtor grounds to defeat the claim. In most cases, the court sends a proof of claim form to creditors along with the initial Notice of Commencement of Case.

The simplest way for creditors to protect their rights in bankruptcy cases is by properly filing a proof of claim. Generally, a proof of claim must be filed for a claim to be "allowed," meaning that the creditor can recover payment from the debtor's assets.

In some cases, creditors who do not file formal proofs of claim are still protected in a bankruptcy case. For example, a lien holder, such as a bank having a security interest in your car, doesn't need to file a claim in order to have their lien protected in bankruptcy.

Allowed Claims

The process of estimation is for the purpose of allowance, so generally estimations result in allowed claims.

Questions for Your Attorney

  • What claims are subject to estimation?
  • What process does a bankruptcy court use to estimate claims?
  • How long will a bankruptcy court delay the administration of a case to wait for a claim to become fixed or liquidated?