What Debts Must You Include in a Bankruptcy Case?

Frequently, when I am meeting with a prospective client, this question will be asked. Often, those prospective clients are worried about keeping a credit card for emergency use. Or, they are under the mistaken belief that if their home or car is included in their case, then they will lose their car or home. These concerns are completely understandable on their part. However, these really shouldn't be of concern in a bankruptcy case. Keeping a credit card is not going to be possible because the credit card issuer will suspend your credit privileges when you file your bankruptcy case. Regardless of that, it would not be a good idea anyway. Adding more debt while you are in a bankruptcy case is contrary to the main purpose of getting yourself to debt freedom, which is why you filed your case in the first place. Including your home mortgage and/or car debt is necessary to ensure that these debts are properly handled or you will face negative (and usually very serious) consequences during or after your bankruptcy case is over.

List All Debts

Aside from the practical considerations just mentioned, the law requires you to list all your debts and creditors in your bankruptcy case. When you sign your bankruptcy petition, you are certifying that all of the information contained in the petition is accurate and complete. If you have intentionally and knowingly failed to list all of your creditors, then your petition is not complete and accurate (and may be deemed fraudulent). In such a case, you may face severe penalties for improperly certifying your petition. If your petition is deemed fraudulent you could be criminally prosecuted for bankruptcy fraud and, upon conviction, be sentenced to serve time in prison.

Another problem that can arise from failure to list all of your creditors is that the law provides that creditors not listed are normally not “discharged” in the case. This means that one particularly severe consequence of not listing a creditor in your case is that you will continue to owe this creditor after your bankruptcy case is over. This unintended and unexpected consequence would likely cause you real problems after your case is over and prevent you securing one of the main benefits of filing the case in the first place. For example, if you failed to list a creditor who had obtained a judgment against you for a debt before your bankruptcy case was filed, the debt of that judgment would not normally be “discharged” and you could face a wage garnishment or other debt collection action after your case is over. This consequence would have been easily avoided had you simply included the debt of the judgment in your bankruptcy case from the start.

Failure to List a Debt

Sometimes clients will call us after we have filed their case to say that they have failed to list a debt. This situation is almost always the result of an innocent oversight. This situation is different from a willful and intentional failure to list a debt although the client will face additional fees and costs to correct this situation. In this situation, the law permits us to amend that client’s petition to include the omitted debt. However, it is far better to take the appropriate amount of time before filing to ensure that all creditors are listed in the petition so that future amendments will not be necessary.

So, if you are contemplating the filing of a bankruptcy case, make sure you tell your bankruptcy lawyer about ALL of your debts. This will avoid the problems mentioned above and enable your lawyer to properly and effectively represent you throughout your case. Filing a bankruptcy case and getting it through to a discharge is not a simple or easy task. There will be enough obstacles and challenges along the way without the added the challenge of an omitted creditor. And when you have properly listed all of your creditors (and retained a competent and experienced bankruptcy lawyer), you can rest assured that you will soon be enjoying a less debt-ridden and less stressful life.