YES! When applying for Chapter-7, you don’t have the luxury of choosing which debt to include or omit. While it is understandable why you may want some debts left out, and unintentional can occur, you must list all your debts, including debt to family members, friends, etc.
Bankruptcy laws don’t allow debtors to decide which creditors they should pay. The role of a debtor is to list all debt, after which bankruptcy courts, through their agents (trustees), decide based on many factors, including the assets you have. Creditors are at risk of losing their money when someone files for bankruptcy. However, creditors expect a fair process. The law also allows for fairness and considers a priority system.
You must include all your debts to allow fairness. Leaving off someone is unacceptable and may be grounds for a bankruptcy case to be rejected.
How Do I List All Debt?
Since you are obligated to list everything, you may be wondering how it is done. Generally, creditors can be listed in bankruptcy paperwork in two categories, namely secured and unsecured creditors.
As the name suggests, secured creditors are those that give you debt secured by something (collateral). If you don’t meet repayment obligations, a secured creditor has a right to repossess the property.
Unsecured creditors are those that offer unsecured debt. While such creditors can’t repossess their property, they can sue you and get their money back. You should list both secured and unsecured creditors in two separate lists in your bankruptcy paperwork.
What Happens If You Unintentionally Forget to List Debt?
It is advisable to talk to a seasoned bankruptcy attorney before you submit your list of creditors. Bankruptcy cases can be dismissed based on incomplete/inaccurate information. To avoid such scenarios, talk to a bankruptcy lawyer first.
Even when you seek legal advice, you can forget to list debt. It’s common for debtors to omit creditors unintentionally. When this happens, and the creditor/s don’t suffer, bankruptcy courts can still discharge the debt by taking a “no harm/no foul” approach.
There is room for innocent mistakes in Chapter-7 bankruptcy filing. If a creditor wouldn’t have gotten anything anyway, the court can overlook an omission. Bankruptcy courts make certain considerations when establishing which unlisted debt is discharged.
First and foremost, the court will assess reasons for omission and then check the impact of such debt on bankruptcy. Lastly, bankruptcy courts also check if a creditor will face prejudice when debt is discharged.
Since the actions of bankruptcy courts when dealing with unlisted debt vary based on jurisdiction, consult a bankruptcy attorney in Austin to give you accurate details on how you should deal with unintentionally omitted debt in Austin TX.
Courts use debt information provided to assess if you have the income to service some debt and meet certain requirements. The importance of getting the process right can’t be overemphasized.
Type Of Case
Chapter-7 gets rid of dischargeable debt. However, your income should be lower than the state median income. You need to pass the means test to establish income eligibility. What’s more, you shouldn’t expect to keep most or all your property.
Generally, chapter 7 cases can either be asset or no-asset. The cases can also involve fraud. The type of case will determine what will happen to unlisted debt.
In an asset case, all debts should be listed so there is money to distribute among creditors. If you omit certain assets in an asset case, you put creditors in a bad position. Unlisted creditors are bound to lose on a rightful share of assets. As a result, debt belonging to unlisted creditors is non-dischargeable.
In a no-asset case, a creditor who isn’t listed won’t be disadvantaged since no money is being distributed. As mentioned above, there is no harm on a creditor’s part, so courts discharge debt in no-asset cases freely. However, there may be exceptions. Unlisted debt in no-asset cases may be non-dischargeable if the unlisted creditor goes to court and secures an order.
Fraud also complicates bankruptcy cases. If a creditor with a legitimate claim offers evidence that you have committed fraud i.e., you intentionally left them out or misled them about the debt, it doesn’t matter if the case is an asset or no-asset case. You can be sued during or after bankruptcy. While debt repayment responsibilities stop after bankruptcy, you can face fines, penalties and/or jail time.
What If I Enter into a Debt Repayment Agreement?
As mentioned above, all debt, including monies owed to relatives, should be listed. So, it’s understandable to wonder if you can omit such debt if you have a repayment agreement in place? Generally, if you owe someone, you must include their debt whether there is a repayment agreement in place or not.
Debtors can enter into voluntary debt repayment agreements as they wish. You can repay debt that would normally be discharged in Chapter-7 bankruptcy. However, you won’t be able to use assets that a creditor is waiting to receive. The best approach is waiting for your bankruptcy case to close and making a voluntary repayment agreement.
Summary: Do You Have To Include All Debt In Chapter 7?
Yes! However, there are exceptions. Bankruptcy courts don’t enforce Chapter-7 bankruptcy requirements blindly. It is common to omit a debt innocently. If such an omission doesn’t affect a creditor, bankruptcy courts can overlook such cases. This applies mostly to unsecured creditors who risk losing anyway, even if their debt is listed.
If an omission is impactful and on purpose, you risk having your bankruptcy case dismissed. It is possible to amend schedules if you omit debt and realize it before your bankruptcy case is closed. However, you’ll need a seasoned bankruptcy lawyer to do this.
Creditors get notified of a debtor’s bankruptcy, so it makes sense to include all debt when completing bankruptcy forms. Find the best bankruptcy attorney in Austin to help you list your debts, among other important documentation that determines if a bankruptcy case is dismissed or accepted.
How Long Does Chapter 7 Last?