CIRA: Legal and Claims Administration

Legal and Claims Administration tests the procedural machinery that turns a bankruptcy case into allowed claims and distributions: bar dates, proofs of claim, objections, priority, setoff, executory contracts and leases, administrative claims, and plan distributions. The exam favors precise claim treatment and deadline analysis.

Core mechanics

• A creditor files a proof of claim under §501; a claim scheduled by the debtor as undisputed, noncontingent, and liquidated generally does not require one. The bar date is the deadline; late claims may be disallowed unless an exception applies.
• Section 502 governs allowance and objections; §502(c) permits estimation of contingent or unliquidated claims. Priority under §507 and secured status under §506 determine payment order.
• Setoff under §553 requires mutual prepetition debts; recoupment arises from the same transaction and is not a preference. Do not conflate them.
• Executory contracts and unexpired leases under §365 require cure of defaults and adequate assurance; rejection is a breach, not termination, and creates a prepetition claim.
• Lease rejection damages are capped by §502(b)(6): unpaid rent plus future rent damages limited to the greater of one year’s rent or 15% of remaining rent, not exceeding three years.
• Administrative claims under §503 receive priority; distributions follow the plan or §726.

Worked example

A debtor rejects a lease with four years remaining at $10,000 per month and $30,000 of unpaid prepetition rent. Remaining rent is $480,000. The §502(b)(6) cap is the greater of one year’s rent ($120,000) or 15% of remaining rent ($72,000), so $120,000; the three-year ceiling does not bind. The allowed rejection claim is $30,000 + $120,000 = $150,000, not $510,000. The landlord also holds an administrative claim for postpetition rent accrued before rejection.

Traps

Do not assume every claim needs a proof of claim. Do not ignore bar dates or the scheduled-claim exception. Do not treat rejection damages as the full remaining rent. Do not confuse cure with rejection: cure keeps the contract; rejection breaches it. Do not use setoff for unrelated transactions. Do not assume administrative priority means immediate payment; it is a priority, not a guarantee of cash at confirmation.