Do I Need to List all Debts in my Bankruptcy Petition? Can I File a Chapter 7 or Chapter 13 Bankruptcy Just on SOME debts and Not Others?
Whether I need to list all debts in my bankruptcy petition or whether I can file a Chapter 7 or Chapter 13 bankruptcy "on" some but not all debts is one of the most common questions asked by potential clients at initial consultations with The Hilla Law Firm. It is a common enough belief that this can be done, prior to speaking with our Michigan bankruptcy attorneys, that we have briefly addressed this on the Bankruptcy Myths page of this site. However, the discussion deserves a little more detailed explanation than that page provides.
Do I Need to List All Debts In My Bankruptcy Petition? YES.
The bottom-line answer to this question is that, yes, you must by requirement of Federal law under the US Bankruptcy Code, the Federal statute that governs bankruptcy in Michigan and elsewhere in the United States, list all of your "liabilities." Which is to say, debts. All debts and and all assets must be disclosed in your Chapter 7 or your Chapter 13 bankruptcy petition. Further, any co-debtors on any debt listed must be likewise listed by name and address, and those co-debtors or co-signors are entitled to receive notice of your bankruptcy filing since, depending on the form of bankruptcy and the nature of the debt, they may be left holding the liability for the debt after you have discharged your own. All of your creditors must be disclosed because they have rights within your bankruptcy process. A bankruptcy filing will stay any collections activity by any of your creditors by virtue of an automatic injunction under Federal law called the "Automatic Stay against Collections." Once you file for Chapter 7 or Chapter 13 bankruptcy, no creditor may engage in any action that constitutes the collection of a debt: no phone-calls, no letters, no invoices, no lawsuits, no garnishments, no foreclosures, no repossessions or property seizures, no perfections of liens—nothing. The Automatic Stay and the eventual bankruptcy discharge operate on a "nuclear" basis, affecting all debts, and thus entitling all of your creditors, whether you love them or despise them individually, to proper notice of the filing and a proper opportunity to contest your discharge (although, in most cases, they likely have no legal basis for contesting your discharge). In order for the creditors to be noticed and afforded that opportunity, they must be listed. And, in any case, no matter how much you love your Kohl's department store credit card, it will, in all likelihood, be canceled by the card issuer after you file your bankruptcy regardless of whether it has a balance or not or whether it was listed or not as all bankruptcy filings are reported to the three credit bureaus shortly after filing by the Federal Bankruptcy Court. Tthe card issuer will find out about the filing—sometimes within minutes of the filing–and generally will cancel the card for fear of violating the Automatic Stay and for other reasons in accordance with their own internal corporate lending policies. You'll have the opportunity, if you wish, to obtain new credit cards after your bankruptcy discharge, so, if you need relief from insurmountable debt, fear of losing a particular beloved line of credit should not stop you from exploring the bankruptcy option.
Do I Need to List All Debts In My Bankruptcy Petition? Yes—and Why You Actually Want Them to Be.
The first reason why you want your debts to be fully disclosed is that, because the Bankruptcy Code requires the disclosure of all debts and liabilities, your signature on the Chapter 7 or Chapter 13 bankruptcy petition is a statement under penalty of perjury that you have thus fully disclosed them. The penalties for committing perjury in a bankruptcy case are severe and can, in extreme cases, even involve felony criminal penalties. Your department store credit card is simply not worth it. There are some additional, pragmatic reasons to want the debts fully listed as well, however. In a Chapter 7 bankruptcy, some key rulings made by judges in Bankruptcy Courts have made it clear that, in a Chapter 7 bankruptcy in which no personal property is being liquidated by the Chapter 7 Trustee (a "no-asset" case), an unsecured debt such as a credit-card, personal loan, or medical bill will be discharged regardless of whether the debt is listed in the bankruptcy or not. For a completely effective bankruptcy discharge, you will want all of your dischargeable debts discharged. Most of the time, it is possible for your Michigan bankruptcy lawyer to determine whether you will be a "no-asset" case or not prior to the filing of your bankruptcy. However, not always. From time to time, the Chapter 7 Trustee may locate an "asset" of your Chapter 7 bankruptcy to distribute to creditors by way of recovering payments you have made to creditors in larger amounts prior to filing your case or by way of gifts or transfers of property you may have made prior to filing or by way of involving him- or herself in the short sale of real estate that is being surrendered in your Chapter 7 bankruptcy case. What may look up front like a straightforward "no-asset" Chapter 7 case can, in the hands of litigious Chapter 7 Trustee, turn into an "asset" case in which your creditors are receiving some payment from the Chapter 7 Trustee from your case and in which your unlisted debts are not being fully discharged. Secured debts such as auto loans or home mortgages are not discharged if they are not listed, period. In a Chapter 13 bankruptcy, no debt is discharged unless it is scheduled in your petition and treated in your Chapter 13 payment plan. But the basic structure and purpose of the Chapter 13 bankruptcy—to repay your creditors some of what you owe them according to your ability to pay over a period of 3-5 years—provides some additional reasons to want to get all of your debts properly disclosed beyond general dischargeability. Some people choose to file a Chapter 13 bankruptcy because they actually desire to repay as much of their debt as they can afford to. This is what Chapter 13 bankruptcy both allows and requires. A "guilt factor" over the complete discharge of a Chapter 7 bankruptcy can cause a Chapter 13 bankruptcy to feel more appealing to some prospective bankruptcy filers, sometimes. Additionally, one of the types of debt that potential filers may be reluctant to list is the debt arising from a personal loan extended to them by a friend or family member. Such personal loan debts must be listed along with all other forms of debt, regardless of whether there is any documentation proving the existing the debt or not. In a Chapter 13 bankruptcy, though, your creditors will receive some percentage of what you owe them (the unpaid balance afterward discharged as in a Chapter 7 bankruptcy). Therefore, your friend or family member to whom you owe a debt has a right to be paid along with the rest of your creditors. If you don't list them, your other creditors will simply receive more of what you pay into your plan; it does not reduce the amount of money you pay into the Chapter 13 plan. Generally, people who owe money to friends or family-members have a strong desire to make good on that debt. Nothing in the Bankruptcy Code prevents a discharged debt of that (or of any) sort from being repaid voluntarily afterward, even though the creditor has no legal right to collect on the debt. In a Chapter 13 bankruptcy, you can ensure that your friend or relative will be paid some of what is owed to them. Finally, some forms of debt are not dischargeable in bankruptcy. These can include child support payment deficiencies, recent tax debt, criminal penalties, and other types of debt. A Chapter 7 bankruptcy will do nothing to discharge or slow for very long the collection of such debts, since a typical Chapter 7 bankruptcy is only 4 months long, approximately. A Chapter 13 bankruptcy will allow such debts to be paid off in full at 0% interest over 3-5 years. But, of course, they must be disclosed and listed in order to take advantage of this possibility. If you are a Michigan resident and are considering filing for bankruptcy, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.