What debts to include in bankruptcy?

18 Jul What debts to include in bankruptcy?

My clients struggle deciding which of their debts should be listed in their bankruptcy papers. This is wasted time.

My headline poses a trick question. There is no decision to make: you include ALL of your debts. Period.

“But, but, but,” the clients sputter. ” I want to keep my car, or patronize my dentist, or pay off my mother.” Fine. But you sign the schedules under penalty of perjury that you have included everyone you owe money to. Listing the debt doesn’t prevent your from doing any of the above.

I think the real underlying trouble here is that individuals don’t realize that “including” a debt in bankruptcy

  • doesn’t make a nondischargeable debt dischargeable
  • doesn’t prevent you from voluntarily paying it after filing
  • doesn’t constitute a declaration you are giving up the collateral

Perhaps the problem has its roots in the credit report phrase that a debt was “included in bankruptcy”. That suggests, falsely, that perhaps there was an alternative to treating the debt in the bankruptcy case.

My job is to explain that you disclose all of your debts, then in your statement of intention you say what you propose to do about secured claims. Some debts listed in the schedules are non dischargeable on their face, like recent tax debt. You still list them.

What you earn after the Chapter 7 is filed is yours to do with as you choose. There is no bar on continuing to pay your dentist or your mother for the money she lent you.

So, take a deep breath and give me a list of ALL of your creditors.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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