Contingent, Unliquidated and Disputed Debts, and Why It Matters

During your bankruptcy you will account for your debts on official bankruptcy forms. The bankruptcy code requires you to list all debts and indicate whether the debt is contingent, unliquidated, or disputed. Below is a quick primer on these types of debts and why you should accurately list the debt.

Contingent debt

A contingent debt is a debt owed to the creditor that depends on some event that hasn’t yet occurred. This includes a debt that may never arise because the event may not occur. Contingent debts are only identified when the contingency that creates the debt is probable and the amount of the liability can be estimated.

Why would you list a debt in your bankruptcy that may or may not arise? Simple, a contingency debt means that certain obligations exist currently that may give rise to a debt in your future. In many cases you can discharge those obligations. For instance, suppose you have co-signed for a car loan for your brother-in-law. Even though you have no liability until your brother-in-law defaults (which may never occur), you may still discharge that potential liability during bankruptcy.

Unliquidated debt

An unliquidated debt means that the exact amount of the debt has not yet been determined. For example, suppose you sue someone for personal injuries. Your attorney agrees to take the case under a contingency fee agreement (1/3 of the recovery, for instance). The debt to your attorney is unliquidated because you don’t know how much, if anything, you’ll win and, consequently, what you will owe your attorney.

Like contingent debts, it is important to list unliquidated debts even though the exact amount is not yet determined. Once the amount is clear and undisputed, the debt is “liquidated.” Liquidated and unliquidated debts are often dischargeable during bankruptcy.

Disputed

A debt is disputed when you and the creditor do not agree about the existence or amount of the debt. For instance, suppose you believe you owe Capital One $1,000 for a credit card debt, and Capital One asserts that you owe $2,000. You would list Capital One as a creditor, list the full amount asserted by Capital One, and identify the debt as “Disputed.”

Listing the debt makes it eligible for inclusion in the bankruptcy discharge. It also alerts the bankruptcy trustee that the creditor may not be entitled to a full distribution of any estate assets.