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Simple English definitions for legal terms
claim in bankruptcy
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A quick definition of claim in bankruptcy:
A claim in bankruptcy is when a person or company says they are owed money by someone who has filed for bankruptcy. They have to ask for the money they are owed by filing a claim in court. But just because they ask for the money doesn't mean they will get it. Sometimes there isn't enough money to pay everyone who is owed. The government gets paid first, and then other people might get some money if there is any left.
A more thorough explanation:
A claim in bankruptcy is a request made by a creditor to receive a portion of the assets of an estate that has filed for bankruptcy. Creditors file a claim in bankruptcy to recover the money owed to them by the debtor. However, filing a claim does not guarantee that the creditor will receive the full amount owed to them.
For example, if the bankrupt estate has limited funds, the government's debt will be prioritized over unsecured private debt. This means that the creditor may not be able to recover the full amount owed to them.
The Department of Justice defines claims in bankruptcy as:
- A right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or
- 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.
For instance, if a person owes a creditor $10,000 and files for bankruptcy, the creditor can file a claim in bankruptcy to recover the money owed to them. However, if the bankrupt estate only has $5,000 in assets, the creditor may only receive a portion of the amount owed to them.