The Effect of Not Listing Creditors on a Bankruptcy Filing

By Beverly Bird

Although filing for bankruptcy offers financial relief, the process isn't stress-free. You'll have to chase down proof of myriad financial details to include in your petition, and this takes time and a bit of work. It's easy to overlook a creditor – even more than one – as you prepare to file. In some cases, fixing the mistake is relatively simple. In others, you may not be able to discharge the debt.

Intentional Omission

Omitting a creditor on purpose is never a good idea. You might owe your best friend $2,000 and you don't plan to stiff him, but if you intentionally leave him out of your petition, the court can construe this as fraud if your trustee finds out about it. You could be liable for criminal charges. In the best-case scenario, the judge will throw out your case and you'll still be liable for all your other debts as well.

Amending Your Petition

If your omission was an honest mistake and you realize your error midway through your bankruptcy, this causes the least fuss – you can amend your Chapter 7 petition to add the creditor. You must have permission from the court to amend your petition, however, so you must file a motion seeking permission. When you receive permission, you can file a new schedule of debts with the court. This is a document attached to your petition that lists everyone you owe and how much. Your added creditor must receive notice and have as much time to object as all the other creditors you initially included, so this can delay your ultimate discharge.

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No-Asset Cases

If you've already received your bankruptcy discharge and your case has closed, the situation becomes a bit more complicated. In a Chapter 7 bankruptcy, your trustee takes possession of your assets, liquidates them, then gives the proceeds to your creditors. They may only receive a few cents for each dollar you owe, but when your bankruptcy is discharged, your remaining obligations are erased. If you own no non-exempt assets, there's nothing for your trustee to sell so your creditors receive nothing. The court discharges your debts anyway. This is referred to as a "no-asset" case. In 1993, the Ninth Circuit Court of Appeals ruled that if you inadvertently omit a debt from your no-asset case, you can still have it discharged after your case closes, because none of your creditors got any money anyway. You can reopen your case to add the creditor, but the 1993 In Re Beezley ruling states that your forgotten debt is considered discharged anyway, even if you don't reopen your case to include it.

Asset Cases

If your creditors did receive some compensation in your Chapter 7 proceeding, you may be stuck with paying your forgotten debt. If your overlooked creditor had been part of your bankruptcy from the beginning, it would have received at least some money from the trustee's liquidation of your assets. Discharging your debt without giving your overlooked creditor any opportunity to collect as well would be unfair. Therefore, the courts in some states will not allow you to reopen your bankruptcy after discharge to add an omitted creditor. At the very least, reopening your case would involve a complicated proceeding in which the court must figure out how to compensate the omitted creditor, at least to the extent that the others received payment. Your only other option would be to pay the bill, as you would not receive a discharge for this particular debt.

Chapter 13

A Chapter 13 bankruptcy is different because it involves entering into a three- to five-year plan to pay your creditors from your disposable income. Your trustee does not liquidate any of your assets. Like a Chapter 7 asset case, this may not result in your creditors getting paid all you owe, but the court discharges the balance of your debts anyway at the end of your plan. Because of the very nature of the proceeding, Chapter 13 creditors always receive something, so the court will not discharge any debts you left out of your petition after you've received a discharge. If you realize a forgotten debt while your plan is still in progress, speak to your trustee or your attorney to find out if there's any chance you can increase the amount of your payments to include it.

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