O stands for Omitted in my Bankruptcy Alphabet. Whether it’s creditors or assets that are omitted, omissions can create trouble in a bankruptcy filing.
So, O could also stand for Oops.
When creditors are missing
Omitted creditors usually create problems only for the person filing the bankruptcy. Bankruptcy works on notice, and, at least as the code is written, a creditor who does not get notice of the bankruptcy does not lose its claim.
However, many courts hold that an omitted creditor is discharged in a no asset Chapter 7 unless the creditor claims to have a non dischargeable claim.
At minimum, a debtor can’t complain if an omitted creditor continues to try to collect the debt.
It’s hard to miss the creditors who send bills each month; it’s the creditors not tied to a regular billing cycle that get missed. Think about co signed loans, obligations on surety bonds, a business lease, an equipment lease.
Then there are creditors whose claims are disputed or undecided, like the other driver in an auto collision . These folks are creditors too.
There’s another reason besides relief from debt that should keep those filing looking for creditors to list: it’s the penalty of perjury. The debtor signs the bankruptcy papers under penalty of perjury that all of his creditors are included. Perjury is a crime.
So, find all the creditors and don’t deliberately omit anyone.
Fail to list stuff you own and the consequences are a bit more far ranging. Assets, after all, are the source of a possible dividend to the creditors who are otherwise getting zip for their claim.
Omit assets and get caught, and the trustee begins to wonder what else in the bankruptcy schedules is inaccurate. The debtor’s credibility takes a hit and things get messier, even if the outcome is OK in the end.
The assets that debtors tend to overlook are ones that are intangible: the right to sue someone, an inheritance not yet distributed, a claim in a class action, an insurance claim. Also slippery are timeshares, stock options, investment partnerships, and the right to a tax refund.
Each of those things are “property” or “assets” for purposes of the bankruptcy schedules. Omit them at your peril.
Innocent omissions can generally be remedied by amending the schedules and pointing out the omission to the trustee at the first meeting of creditors. Missing some creditor or some asset is not unusual, and showing that you take the process seriously and fixing the blunder usually saves the day.
This post was brought to you by the letter O.
Others I won’t name claim O is for Own.
Image courtesy of Leo Reynolds.