Bankruptcy unclaimed funds and dividends

3 key takeaways

• Unclaimed funds are amounts that creditors or other parties have not collected after a bankruptcy case is closed.
• These funds are held by the bankruptcy court or trustee until the rightful owner claims them.
• Creditors must follow specific procedures to claim their unclaimed funds or dividends.

What are bankruptcy unclaimed funds and dividends?

During bankruptcy proceedings, the bankruptcy trustee distributes funds from the debtor’s estate to creditors based on the priority and amount of their claims. Sometimes, after this distribution, some funds remain unclaimed by creditors or other entitled parties. These unclaimed funds and dividends are held by the bankruptcy court or trustee until they are claimed by the rightful owners.

Unclaimed funds can arise for various reasons, such as incorrect creditor addresses, creditors forgetting to claim their dividends, or disputes about the amounts owed.

How does the unclaimed funds process work?

1. Distribution of funds: After the trustee liquidates the debtor’s assets, the proceeds are distributed to creditors according to the priority established by bankruptcy law.
2. Unclaimed amounts: Any funds that creditors do not claim within the specified time frame become unclaimed funds.
3. Holding funds: The trustee or bankruptcy court holds these unclaimed funds in a designated account until they are claimed.
4. Claiming funds: Creditors or other entitled parties can claim their unclaimed funds by following a specific procedure and providing proof of their entitlement.

Procedures for claiming unclaimed funds

1. Identify unclaimed funds: Creditors or other parties must first identify whether they have unclaimed funds from a bankruptcy case. This information is often available through the bankruptcy court’s website or by contacting the court clerk.
2. Submit a claim form: The claimant must complete and submit a claim form to the bankruptcy court. This form typically requires information such as the case number, the amount of unclaimed funds, and proof of entitlement.
3. Provide documentation: The claimant must provide supporting documentation, such as identification, proof of address, and evidence of the debt owed.
4. Court review: The bankruptcy court reviews the claim and supporting documentation to verify the claimant’s entitlement to the funds.
5. Release of funds: If the claim is approved, the court releases the unclaimed funds to the rightful owner.

Real-world application

Example: XYZ Corporation was a creditor in a bankruptcy case and was entitled to a $5,000 dividend from the liquidation of the debtor’s assets. However, due to an incorrect mailing address, XYZ Corporation did not receive the payment, and the funds remained unclaimed.

Identifying unclaimed funds: XYZ Corporation later discovers the unclaimed funds on the bankruptcy court’s website.

Submitting a claim: XYZ Corporation completes the required claim form, providing the case number, amount of unclaimed funds, and proof of their claim.

Providing documentation: They submit supporting documentation, including identification and proof of the debt owed.

Court review and release: The court reviews the claim and, upon verification, releases the $5,000 unclaimed funds to XYZ Corporation.

Importance of claiming unclaimed funds

• Recovering owed money: Creditors can recover funds they are entitled to, which can be crucial for their financial health.
• Ensuring fairness: The process ensures that all entitled parties receive their fair share from the bankruptcy estate.