When you file a bankruptcy case, it is very important to make sure all of your creditors are listed in the papers. This means everyone you owe money to, not just credit cards and banks. It includes medical bills, hospital bills, student loans, taxes, parking tickets and anyone to whom you owe money. You do not include your current utility suppliers, but would include old telephone and cell phone bills, and old electricity and gas bills. Leaving anyone off can cause problems later, to varying degrees.
You would want to include student loans, even though you still will have to pay them, and taxes, many of which you wills still have to pay, because by giving them notice through including them, they will leave you alone for several months while your case is active, giving you some breathing room to arrange for payment.
If you leave a debt off deliberately, such as one on which someone else may also be liable, this can get you into trouble because you have thus filed incorrect papers, swearing they are true when you know they are not. Leaving off a debt because you do not remember it does not get you into trouble, because you have made your best effort to file correct papers. If you have a debt that someone else is liable on, as long as the debt continues to be paid they will not suffer harm to their credit rating.
But what if, despite your best efforts, you realize you left a debt out of the bankruptcy papers? If you file a Chapter 7 case and find out about it before the case is closed, you can have your attorney file an amendment to add the creditor and all will be well. If you filed a Chapter 13 case, and file the amendment before the plan is confirmed, you will similarly be all right. In a Chapter 13 there is a problem when you case is confirmed and you find out about a creditor you left off. This arises in a plan where you promise to pay a certain percentage of your debts. If, for example, your plan provides for payments of 25 percent of your debts, and adding the new creditor to the mix brings your percentage down to 22 percent, you may have to find some extra money to bring everyone back up to 25 percent.
For Chapter 7 cases where no money is distributed to creditors, if you learn of a debt that was missed after the case was closed, do not panic. Get in touch with your attorney and he can write to the creditor and tell them about your case, and point out that the debt is discharged even though it was not listed in the petition. The courts have held this to be true because the creditor is not missing out on anything because no money was distributed, and it is better to declare the debt discharged than have cases reopened to add a creditor.
When you have a Chapter 7 case where some money was distributed to creditors, because a car or house was sold, or there was some non-exempt asset that was reduced to money, the debt is not discharged because the creditor has missed out on an opportunity to get a portion of the debt paid through the bankruptcy. The same is true for a Chapter 13 case where a debt shows up after the case is over, because the creditor likewise missed out on getting some of the debt paid.
This should all show the importance of making sure all of your debts are included in the bankruptcy. Unfortunately, there is no perfect way to accomplish this. The best way is where the client knows exactly to whom they owe money and can provide a complete list. Problems can arise when the debts have languished for some time and the client cannot precisely remember who all of the creditors are. We can always get credit reports, but they are not always completely accurate, and they do not include medical bills.
If you are reading this because you are thinking about bankruptcy, but may put it off for a while, make sure you save everything you receive from your creditors, from collection agencies and form law firms, even if you start filling up shopping bags with the stuff. Do not ever shred anything! And even if you are not able to pay your debts, make sure the creditors have your new address in case you move. We often have clients literally bring in shopping bags full of unopened letters from creditors. We are very good at going through the mess and figuring out what the client owes, so don’t be bashful about bringing stuff into the office. Better that than to leave something out.
Allan Bloomfield practices bankruptcy law in Forest Hills, Queens. Contact Allan today for a free consultation.