Most people have at least one debt they don’t want to erase or "discharge" in bankruptcy, and many think they can pick and choose the debts included in the case. The truth is that you must list all of your creditors—even friends and family members you don’t want to go unpaid. In this article, you’ll learn why you must list all debts in bankruptcy, how you’ll list your debts in the bankruptcy petition, and the things that can go wrong if you leave out a debt.
Why You Must List All Debts in Your Bankruptcy
Bankruptcy law doesn’t allow you to decide which creditors get paid—and the reasoning makes sense. When you file for bankruptcy, all your creditors stand to take a financial loss. Creditors expect things to be fair, and the law ensures this occurs by dividing available funds according to the bankruptcy payment priority system rules when there's money to be had.
So, even if you want to repay your aunt the $500 you borrowed for a snowboard, you must include her as a creditor. However, the law doesn't prevent you from compensating her after bankruptcy if you so choose.
How You’ll List Your Debts in Your Bankruptcy
You’ll list your creditors in your bankruptcy paperwork as follows:
- Secured creditors. These debts are guaranteed by collateral that the creditor can take if the debtor fails to make payments, such as a house or car. You’ll list secured creditor claims on Schedule D: Creditors Who Hold Claims Secured by Property.
- Unsecured creditors. These debts aren’t secured by property. Most unsecured creditors must sue you in court and get a money judgment before they can forcibly take property. Most credit card balances are unsecured debt, but a few are secured (examples include credit accounts from jewelry, furniture, and electronics stores). You’ll list unsecured creditors on Schedule E/F: Creditors Who Have Unsecured Claims.
You’ll find more terms you’ll need to understand in Types of Claims in a Bankruptcy Case. Go to the U.S. Courts website to find and download fillable official bankruptcy forms.
Things That Go Wrong If You Don’t List Debt in Bankruptcy
You don’t want to forget to list debt if there’s any way to avoid it. Why? You could end up still owing the obligation after bankruptcy. The consequences will depend on several factors, including the type of bankruptcy.
Not Listing Debts in Chapter 7 Bankruptcy
Chapter 7 cases are over quickly and are either asset or no-asset cases. Where your case falls will determine what happens to your unlisted debt.
- Asset case. Listing all your debts is especially important if it turns out that yours is an asset case, meaning that money is available to disperse to creditors. If you don’t list a creditor in an asset case, that creditor unfairly loses its share of funds. So, the rule is that the debt owed to an unlisted creditor in an asset case is nondischargeable.
- No-asset case. If you accidentally forget to list a creditor in a no-asset case where there’s no money to distribute, the result could go either way. Courts often take a “no harm, no foul” approach because the unlisted creditor wouldn’t have gotten anything anyway, But not always. Some courts find unlisted debts nondischargeable even in no-asset cases. Not listing a debt is never a good idea because convincing the unlisted creditor that the debt is discharged might require you to file a motion and get an order from the court.
- Fraud exception. If a creditor has a legitimate claim that you committed fraud—that you intentionally misled the creditor about a debt—then all bets are off. It doesn’t matter if it’s an asset or no-asset case—if you don’t list the debt, you can be sued even after your bankruptcy ends.
Find out the cost of filing for Chapter 7 bankruptcy.
Not Listing Debts in Chapter 13 Bankruptcy
Chapter 13 is a debt reorganization plan that lets you pay smaller monthly payments to your creditors over three to five years. Once you complete your plan, any remaining balance on dischargeable debt goes away.
If you don’t list a creditor in a Chapter 13 bankruptcy, the consequences are the same as in a Chapter 7 asset case discussed above. The debt won’t be discharged, and you’ll be responsible for paying it after your case ends.
Find out the cost of filing for Chapter 13 bankruptcy.
Paying Debt After Bankruptcy
If you want to pay someone back out of the goodness of your heart after your bankruptcy ends, you’re free to do so—even if you included the debt in your bankruptcy case. You can do whatever you want with post-bankruptcy earnings or assets.
For further information, learn how bankruptcy can help with eviction and the steps involved in filing for Chapter 7 bankruptcy.
