Every bankruptcy case begins with a flurry of paperwork. In addition to the bankruptcy petition, you’ll need to file multiple schedules and other documents listing comprehensive information about your assets, debts, creditors, and other financial information. Given the complexity of the information requested, it can be easy to make mistakes.
One mistake that people sometimes make when filing for bankruptcy is forgetting a creditor or debt. When that happens, the omitted creditor may never learn of the bankruptcy filing, and—depending on the circumstances—the creditor may be able to continue trying to collect the debt even after the debtor receives a discharge.
To help you understand the impact that forgetting a creditor can have on your bankruptcy filing, this post offers a high-level overview of the issues raised in such circumstances. But it’s just an overview—you should always consult a knowledgeable bankruptcy attorney for specific guidance about your own circumstances.
Why Listing All Creditors and Debts Matters
When you file for bankruptcy, the U.S. Bankruptcy Code requires that you provide detailed information about your finances, including a list of creditors and a schedule of assets and liabilities. In Nevada, you must also file a “Creditor Matrix,” a document that includes each creditor’s name and mailing address.
The bankruptcy court will use the contact information you provide for your creditors to notify them that you have filed for bankruptcy. That notice is important for two reasons:
- It lets your creditors know that they are subject to the automatic stay. That means that they will have to stop any collection activities (including contacting you). If they don’t receive that notice, then they won’t know they have to stop trying to collect from you.
- It lets your creditors know that they must file a proof of claim if they want to participate in the bankruptcy process. The proof of claim entitles the creditor to a share of any amounts distributed by the bankruptcy trustee.
In addition, keep in mind that your bankruptcy filings are made under penalty of perjury. Intentionally omitting a creditor or debt is a crime—one that will cause you to lose your right to a discharge and can land you in jail. And even if you inadvertently omit one, the creditor may claim you’ve done so on purpose, forcing you to litigate that issue in court.
Finally, even if your omission was inadvertent, the debt still might not be discharged, depending on the type of bankruptcy you’ve chosen and the type of debt you’ve omitted. These issues are discussed in more detail below.
Forgetting a Creditor in a Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy, the bankruptcy trustee will sell your non-exempt assets, if any, and use the amounts received from those sales to pay off your unsecured debts—or as much of those debts as possible. At the end of your bankruptcy case, which is usually a matter of months, any remaining unsecured debts are discharged, meaning you don’t have to repay them.
What happens after forgetting a creditor in a Chapter 7 bankruptcy depends on two facts:
- Is the omitted debt secured or unsecured?
- Do you have any non-exempt assets?
Is the Omitted Debt Secured or Unsecured?
A secured debt is one for which the creditor has the right to repossess a specific piece of property upon default. Common secured debts include home mortgages and car loans. In contrast, an unsecured debt is one for which there is no right to specific property if the debtor defaults. Credit cards and medical bills are common types of unsecured debt.
If a debt is secured, it will not be discharged through bankruptcy. If you want to keep the property securing the debt, you will have to reaffirm it and continue paying the creditor even after you receive your discharge. Otherwise, you can surrender the property to the creditor.
On the other hand, if a debt is unsecured, then whether inadvertently omitting it affects your discharge or not depends on whether you have any non-exempt assets.
Do You Have Non-Exempt Assets?
Most Chapter 7 bankruptcies are “no asset” bankruptcies, because all the debtor’s property qualifies for a bankruptcy exemption. That is, the debtor has no non-exempt assets to sell.
In a “no asset” bankruptcy in Nevada, your unsecured debts will be discharged even if you inadvertently omitted a creditor. Courts think of this as a “no harm, no foul” situation: The creditor couldn’t have received anything from your bankruptcy anyway, so it hasn’t been harmed by your inadvertent omission.
However, if you have non-exempt assets, then your creditor has been harmed by your omission, because it lost the chance to file a proof of claim and receive part of the proceeds from the sale of your non-exempt property. Consequently, the debt you owe to the omitted creditor will not be discharged when your case concludes.
Forgetting a Creditor in a Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, you won’t lose any property, even if it’s non-exempt. Instead, you develop a repayment plan to pay back your creditors over a period of three to five years. If you keep up with your payments under that plan, then at the end of that period, any remaining unsecured debts will be discharged.
Forgetting a creditor in a Chapter 13 bankruptcy means it will be deprived of the opportunity to review your repayment plan or receive payments under it. Consequently, your debt to the omitted creditor will not be discharged at the end of your repayment plan. That means that creditor will be able to try to collect on your debt to it even after your discharge.
How to Add a Creditor to Your Bankruptcy
If, after filing for bankruptcy, you discover that you have omitted a creditor, you should contact your Las Vegas bankruptcy attorney promptly. If your bankruptcy case is ongoing, your lawyer can help you amend your bankruptcy documents to ensure all your creditors are notified and the court has all the information it needs to proceed with your case.
If your bankruptcy case has already closed, your lawyer can help you determine what steps you should take to remedy the situation.
If you’re considering bankruptcy and would like to better understand the process or want help making sure that you provide all necessary documents and information from the outset, contact the experienced Las Vegas bankruptcy attorneys of Haines & Krieger today for a free consultation.