Myth: Debts I list on my bankruptcy schedules will be discharged. OR Debts I do not list on my bankruptcy schedules will not be discharged. OR I can pick and choose which debts to include.
Fact: A lot of confusion arises because most people think that “listing” a debt is synonymous with “filing against” or “discharging” a debt, which is inaccurate. Unfortunately, too many people do not disclose all of their debts as they should, and this causes big problems down the road. Listing a debt on your bankruptcy schedules is NOT synonymous with having the debt discharged. Whether a debt is discharged depends on the nature of the debt, not whether it was listed and disclosed.
A non-dischargeable debt (such as a student loan or tax debt) is what it is. You could file bankruptcy over and over again, and list your student loans on your bankruptcy petition each and every time. Unless you can demonstrate the nearly impossible standard of undue hardship, those student loans are not going away.
And a dischargeable debt (such as a credit card or medical bill) is what it is. So many clients want to keep a particular store credit card, a credit card for making fuel purchases, or they don’t want to file against their favorite doctor. But the bankruptcy is universal, and all unsecured debts are discharged, whether they were listed on schedules or not.
A non-dischargeable debt (such as a student loan or tax debt) is what it is. You could file bankruptcy over and over again, and list your student loans on your bankruptcy petition each and every time. Unless you can demonstrate the nearly impossible standard of undue hardship, those student loans are not going away.
And a dischargeable debt (such as a credit card or medical bill) is what it is. So many clients want to keep a particular store credit card, a credit card for making fuel purchases, or they don’t want to file against their favorite doctor. But the bankruptcy is universal, and all unsecured debts are discharged, whether they were listed on schedules or not.
Stated another way, the Chapter 7 discharge is "good against the world," including unscheduled creditors. The discharge is said to be good against the world in the sense that it applies to all unscheduled debts except those that are expressly made nondischargeable by § 523. In re Guseck, 310 B.R. 400, 402 (Bankr. E.D. Wis. 2004)
Nor does listing your home mortgage and auto loan mean that you are going to lose your house or car. Most people get to pick and choose which secured debts they will reaffirm or surrender. Listing secured creditors on your bankruptcy schedules is not itself an affirmation of intent.
So if a debt will be discharged whether or not it is listed on schedules, or if a debt is non-dischargeable whether or not it is listed on schedules, then why is it is so important to list creditors on schedules?
No matter who the creditor is – a non-dischargeable student loan, a dischargeable credit card, or a home mortgage you intend to reaffirm – they are all legally affected by your bankruptcy filing. Your bankruptcy case automatically endows you and all of your creditors with certain rights and responsibilities.
Disclosing all debts is a matter of proper notice and due process rights. Each of your creditors is entitled to be made aware of your bankruptcy so that they can conform their behavior accordingly. If their debt is dischargeable, they may be entitled to object to discharge if they can prove fraud. Though student loans won’t be discharged, your lender is still required to not make collection attempts while the bankruptcy is pending. And though you intend to reaffirm your home mortgage, the debt is technically dischargeable, so your lender needs to execute a reaffirmation agreement.
And if your case is an "Asset Chapter 7" (non-exempt property available to the trustee to be sold for the benefit of unsecured creditors) or a Chapter 13 (which includes monthly plan payments to be redistributed among creditors), then all of your creditors have a right to know about the bankruptcy so they can file claims.
Sure, there are other reasons to list all creditors. (1) So you get the full force and benefit of your automatic stay and discharge injunction protections. (2) Because your debt to income ratio, who your creditors are, and how much your creditors are owed (regardless of class) may very well have a material impact on your case and how it is administered. (3) Because keeping unsecured debts "out of bankruptcy" usually means you're still making payments to them, which would suggest that you have been making preferential payments.
But at the end of the day, it is primarily a due process issue. Each and every one of your creditors, regardless of your intent to pay and regardless of dischargeability, will be affected by your bankruptcy case and have a right to know that you filed for bankruptcy.
So if a debt will be discharged whether or not it is listed on schedules, or if a debt is non-dischargeable whether or not it is listed on schedules, then why is it is so important to list creditors on schedules?
No matter who the creditor is – a non-dischargeable student loan, a dischargeable credit card, or a home mortgage you intend to reaffirm – they are all legally affected by your bankruptcy filing. Your bankruptcy case automatically endows you and all of your creditors with certain rights and responsibilities.
Disclosing all debts is a matter of proper notice and due process rights. Each of your creditors is entitled to be made aware of your bankruptcy so that they can conform their behavior accordingly. If their debt is dischargeable, they may be entitled to object to discharge if they can prove fraud. Though student loans won’t be discharged, your lender is still required to not make collection attempts while the bankruptcy is pending. And though you intend to reaffirm your home mortgage, the debt is technically dischargeable, so your lender needs to execute a reaffirmation agreement.
And if your case is an "Asset Chapter 7" (non-exempt property available to the trustee to be sold for the benefit of unsecured creditors) or a Chapter 13 (which includes monthly plan payments to be redistributed among creditors), then all of your creditors have a right to know about the bankruptcy so they can file claims.
Sure, there are other reasons to list all creditors. (1) So you get the full force and benefit of your automatic stay and discharge injunction protections. (2) Because your debt to income ratio, who your creditors are, and how much your creditors are owed (regardless of class) may very well have a material impact on your case and how it is administered. (3) Because keeping unsecured debts "out of bankruptcy" usually means you're still making payments to them, which would suggest that you have been making preferential payments.
But at the end of the day, it is primarily a due process issue. Each and every one of your creditors, regardless of your intent to pay and regardless of dischargeability, will be affected by your bankruptcy case and have a right to know that you filed for bankruptcy.
Want to find out what bankruptcy could mean for you? Call (920) 490-6160 now to schedule a free consultation.
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