Listing Debts Owed to Relatives in a Bankruptcy Case

09 Apr Listing Debts Owed to Relatives in a Bankruptcy Case

The bankruptcy law requires that every debt owed by the debtor be listed in the bankruptcy papers, and that the creditor be notified by the court of the bankruptcy proceedings. The reasons for this are many, including fairness to creditors, allowing the trustee to understand the debtor’s financial affairs, and enabling all creditors to share in a distribution of the debtor’s assets (although this rarely happens in consumer bankruptcy cases). For some, this a troublesome idea, because they may not want persons whom they know to become aware of their bankruptcy filing. Nonetheless, the legal requirement to list every creditor is fundamental to the bankruptcy law, and the debtor simply has to do it even if he or she does not want to.

To lessen the perceived embarassment which could occur when the relative receives the bankruptcy notice from the court, the debtor ought to consider notifying the relative of the impending bankruptcy. This way, the relative will not be surprised by the bankruptcy notice when he or she receives it. The debtor may also want to explain to the relative that he or she intends to repay the relative notwithstanding the bankruptcy filing, if that is the intention (the law provides that it is acceptable to repay any debt after the bankruptcy is concluded). In fact, the debtor might go so far as to explain to the relative that the only way he or she can afford to repay them is because the bankruptcy is discharging all of his or her other debts. In other words, the bankruptcy is what will make repayment of the relative possible.

The worst idea would be to repay the relative before filing, in a misguided attempt to avoid listing the relative in the bankruptcy. This would have the unwanted effect of drawing the relative into the case, because the trustee has the right to recover money repaid to relatives in the one year before filing the bankruptcy. This can be avoided by simply listing the relative as a creditor, and repaying the relative later if desired.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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