Contingent Claim

Claims, also known as debts, in bankruptcy are classified as straightforward or not straightforward. When a claim is straightforward, the amount of the claim is also what you owe. However, not straightforward claims are a bit more complex. This is because they still have subcategories: contingent claims, unliquidated claims, and disputed claims.

Contingent Claim

What are “not straightforward” claims?

Not straightforward claims are so called because determining a debtor’s claim owed to a creditor is not really that easy to figure out. This is because there are several factors wherein the debt might depend on someone so it cannot be determined or the supposed debt is disputed by the creditor. However, there are rare cases in which a contingent claim happens. This is different from unliquidated claims and disputed claims because it needs an event that hasn’t yet occurred to consider a claim. However, this event might not even occur at all which makes the claim very unpredictable.

When claims are neither unliquidated nor disputed, they are considered contingent.

As a debtor, you have to be aware that there are different classifications of claims. But first, you have to know how each type of these claims differ from one another.

  • Unliquidated claims – this only means that a claim already exists but the exact amount has not yet been determine. This can be best explained through an example. Say that you were injured and you sued that someone who caused you the injury. Since the case is not yet finished, the lawyer will take the case under the contingency fee agreement where they will get a third of the recovery fee if you win the case and nothing if the case ends otherwise. In turn, you will have an unliquidated claim to the bankruptcy lawyer because first, you don’t know yet how much the final amount will be and second, you won’t know until the end of the case if you’ll win.
  • Disputed claims – this only means that the creditors you owe money with do not agree with the amount of debt you said you owe.
  • Contingent claims – this only means that your claims need some event to happen that may not even happen to be considered a claim. For example, if you have a secured loan that you cosigned with another debtor, you will not be held liable to that debt unless the principal debtor fails to make and follow the necessary payment schedules. This type of claim is considered a special type of claim since the events leading to the debtor being liable do not happen before the bankruptcy case is filed.

Estimating contingent claims

There are cases when unliquidated claims also fall under the category of contingent claims as shown in the example above. If this happens to be the case, the bankruptcy court might submit the query to negotiation, arbitration, or appraisal or conduct a trial.

In the case of estimating a contingent claim, the bankruptcy court will simply estimate the possibility of the contingency happening and put a value to such a claim especially if it’s not yet liquidated. When this happens, it is better to contact with a bankruptcy attorney to help with your case.