How can I dispute a debt in the bankruptcy process?

Edgardo Veguilla-Gonzalez, Esq.

One of the major advantages of bankruptcy is that the debtor is not obligated to pay the entirety of the most common debts, such as personal loans and credit cards. This is because, in the case of these debts (called "unsecured non-priority debts"), the Bankruptcy Code is more concerned with whether the debtor can pay or not, and how much the debtor can reasonably contribute to the payment of these debts, rather than focusing on the total balance of each debt. In other cases, it is required that the debtor pay the total balance of certain debts ("priority debts") or at least bring any arrears up to date ("secured debts").

However, this doesn't mean that the debtor has to accept the creditor's claim of the debt balance.

As part of the bankruptcy process, any creditor who wishes to receive payment from the trustee, whether in Chapter 7 or 13, must submit a proof of claim to the court. In this document, under oath, the creditor assures the court that they indeed own a claim against the debtor, describes the nature of the debt, the balance of the debt as of the filing date, and any evidence necessary to support its validity.

If the debtor disagrees with any of these creditor allegations in their proof of claim, they can file an objection to the claim and bring to the court's attention any arguments or evidence that refute the alleged debt. Things that can be objected to include: the debt balance, the existence of the debt, the debtor's responsibility to pay it.

In the normal course of life, when you have a disagreement with a creditor about whether a payment was made correctly or not, it is very difficult or almost impossible to get the creditor to admit an error and agree with you. The creditor holds all the cards, and in most cases, the creditor's version prevails, not because they are right, but because they are the stronger party in the transaction.

The bankruptcy process provides the debtor with a more equitable space in which to air these disputes, which will ultimately be resolved by a judge, rather than the whim of the creditor.

Only after this dispute is resolved, and the correct amount of the debt is determined, as the case may be, can payment be provided, either in full or in part, or the discharge of the entire balance.

This process of objecting to the creditor's claim is available to challenge all types of debt, including federal and state taxes, fines, utilities, rent contracts, and many others.

Add to this the benefit of automatic stay, which prohibits the creditor from continuing collection efforts while bankruptcy is pending, and you can understand why it is much more favorable for you to fight for your rights in the bankruptcy forum than directly with the creditor. 

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