Frequently, clients will ask me if we can’t just keep some debts out of bankruptcy–they want to keep a particular debt off the list of creditors when we’re preparing their bankruptcy case. “I just want to keep that one and pay it off,” they say, “so why can’t we just leave it out of the bankruptcy?”
There are actually a bunch of reasons why we can’t leave it out. First, it sometimes surprises people to learn that we’re not making a list of debts you want to wipe out in your bankruptcy case. Instead, we are making a complete list of people and companies you owe money to. The way things work in a bankruptcy case, you get all of your debts wiped out that can be wiped out. The bankruptcy courts don’t have time to go down the list and see which debts you want to keep and which ones you want to get rid of.
The system just requires you to list all of the creditors and then when you get your discharge at the end of your bankruptcy case, those creditors and their debts are wiped out–unless there’s a particular reason under bankruptcy law why that debt won’t be wiped out. For instance, child support, most student loans and many taxes won’t be wiped out in bankruptcy. You still have to list them because they’re debts, but you’ll still owe them after your case is over.
This is not the case for most regular debts like credit cards and personal loans. At the end of your case, they all get wiped out with the discharge. In California and neighboring states (the Ninth Circuit), they get wiped out whether you list them or not–in most cases.
Second, you have to list all your creditors and can’t leave any “out of bankruptcy” because you have to sign under penalty of perjury that you have listed all your creditors and the debts you owe. When you sign under penalty of perjury, it means you understand you can go to prison for not telling the truth. When you sign those bankruptcy papers, you want to make certain that they’re as accurate as possible. If you intentionally leave off a creditor and sign your papers, you have a perjury problem. When perjury becomes an issue, you may have to start looking for a criminal defense attorney rather than a bankruptcy attorney. So be honest and list every creditor and every debt!
Third, when you are asking for bankruptcy protection from the federal government, all of your creditors are entitled to know about it. If you owe someone money, they have a right to know that you’ve filed a bankruptcy case. That’s the case even if you don’t want them to know. Some of my clients feel that the embarrassment of filing a bankruptcy case is more than they can endure and they don’t want anyone else to know. I try to reassure them that most banks, credit unions and credit card companies don’t care a lick about whether you file a bankruptcy case. They’ll close out the account, write it off and move on.
Of course, if the creditor is a family member, the story might be a bit different. Still, my experience has been that even family members usually understand that bankruptcy was a necessary step for you and that you were out of options.
Fourth, even if you kept the debt off the list, the creditor would likely find out about the case and cancel your account anyway. It comes as a surprise to a lot of people that the credit card companies track who files for bankruptcy and compare those names to their list of cardholders. Within a very short amount of time, a credit card company will usually know that you’ve filed a bankruptcy case. They won’t even wait around to get a notice from the court. They just close your account.
Over the years, I’ve had a number of clients call me right after we file their case and complain that they recently paid (without telling their attorney) $1,000 on an account that they were trying to keep out the bankruptcy case–and the credit card company just cancelled their account anyway! I tell them, “Yep, they keep track of who files. And it’s too bad about the $1,000. You could have flushed that money down the toilet and it would have accomplished the same thing! Or you could have used the cash to buy clothes for your kids, fix the car, put it in retirement or any of a hundred other things. But now it’s gone. Sorry. This is why I told you we have to list all of your creditors and debts.”
The moral: You simply can’t choose to keep some debts out of bankruptcy. List all of your creditors! Period!
