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.
There’s a worry among bankruptcy debtors that only the amount that is listed in the bankruptcy papers will be discharged.
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.
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.
Image courtesty of Rronenow and Wikimedia.