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It’s Who You Owe In Bankruptcy

By Cathy Moran

owl cropped

WHO to list in your bankruptcy case is a question I hear lots.

My response: bankruptcy is all about WHO you owe, not so much about HOW MUCH you owe, when you file.

WHO, WHO, WHO.

Which is why one of the most important tasks in filing bankruptcy is to write down everyone you owe money to.

If your debt is subject to discharge,  your bankruptcy wipes out all of your debt to a creditor  you’ve listed.  Even if you got the amount wrong or even don’t know how much you owe. Or dispute that you owe anything.

Why we list creditors

It’s all about due process.  Remember from civics class?

Notice of your bankruptcy case is the due process that a creditor must get.

Notice gives the creditor a chance to share in any distribution in a bankruptcy case;  notice gets the creditor gets a chance to contest your right to get a bankruptcy discharge.  A creditor can challenge the discharge of your debt to the creditor if there are legal grounds.

The creditor would lose those rights if he didn’t have notice of the case.

Every creditor listed in your bankruptcy schedules gets notice of the filing of your case from the court clerk.  That same list is used by the court to provide every listed creditor a copy of the order granting your discharge.

Myth

There’s a worry among bankruptcy debtors that only the amount that is listed in the bankruptcy papers will be discharged.

Not so.

The bankruptcy discharge works to discharge all of your obligation to that creditor.  Say you owe the credit union on a personal loan and on a credit card.  Even if you listed only one of those loans, both would be discharged, because the creditor (the credit union) had notice.

Secured liens after bankruptcy

Focus

In preparing to file bankruptcy, spend your energy finding all the entities who might have a legal claim on you.

Don’t limit yourself to the creditors who send you a monthly bill.  Look for debts you’ve guaranteed for others, loans from inidividuals, disputes with business partners or co owners, and even claims by governmental units.

Remember that your credit report does not include all of your creditors

.

It’s OK to estimate what you might owe, or to list an entity and dispute that you owe them anything.

If a creditor gets notice of your bankruptcy filing, they are bound by the resulting discharge.

In the end, it’s all about WHO knows.

More

What if you skip a creditor

Why so much paper in bankruptcy

Your credit cards before you file

How to interview a bankruptcy lawyer before you hire them

What should bankruptcy cost

Image courtesty of Rronenow and Wikimedia.

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Filed Under: How bankruptcy works

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Bankruptcy Basics

About The Soapbox

You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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