Know Who You Owe Before You File

It seems obvious that an individual should collect all of his debts and creditor information before filing bankruptcy. However, many debtors arrive at their attorney’s office for an initial consultation with little or no information about their debts. Fortunately, obtaining debt information is not difficult, but may take a little time and effort.

Credit Report

Your credit report is the best place to start when gathering information about your debts. Some debtors are surprised to learn that there is not one comprehensive credit report kept on an individual, but many reports collected by different agencies. Every consumer credit reporting agency is required by the Federal Fair Credit Reporting Act to provide you with one free copy of your credit report every twelve months, but collecting a copy of your credit file from each of these agencies is time consuming and pointless for most debtors.

There are three “main” agencies in the consumer credit reporting world: Equifax, Trans Union, and Experian. In order to comply with the federal law, these three agencies have established a website for consumers to quickly obtain an entirely free, no-strings-attached credit report. The website address is: https://www.annualcreditreport.com/cra/index.jsp There is no need at this time to subscribe to a credit monitoring service or pay money to obtain your credit score. These services are useful in rebuilding credit after bankruptcy, but useless until you receive your discharge.

Obtaining a copy of your credit report is a very good step in making a good-faith effort to identify all of your creditors.  However, it is important not to rely exclusively on the information contained in the credit reports.  Not all creditors report to the credit reporting agencies.  Additionally, the information contained in your reports may be inaccurate, outdated, or incomplete.

Mail

The US Postal Service is another excellent source for obtaining debt information.  Creditors and collection agencies are very good at sending monthly bills when you owe them money.  Collect your mail for a month and you will have a good start on listing your creditors.

Forgotten Debts

A creditor is sometimes forgotten or overlooked when preparing the debtor’s bankruptcy schedules. Even the most diligent individual can occasionally forget a past debt. When this happens, the bankruptcy law offers several remedies:

If an omitted creditor is discovered during the bankruptcy case, the law requires the debtor to file amended schedules and identify the creditor.  The debtor has an obligation to ensure all creditors are identified and receive notice of the bankruptcy case.  Intentionally failing to list a creditor can cause that debt to be declared non-dischargeable and survive the bankruptcy.

Sometimes even the most diligent debtor will forget a creditor.  Things get trickier if the omission is discovered after the bankruptcy case has closed.  How the debtor proceeds will depend on the court and the circumstances. In many cases an omitted creditor is considered discharged as a matter of law. Failure to list a creditor means that the creditor did not receive notice of the bankruptcy case and was not given an opportunity to protect its interests during the case. However, if none of the debtor’s assets were distributed to creditors, many bankruptcy courts say the omission did not have any practical effect. In these cases it didn’t matter that the creditor did not receive notice, the debt is discharged anyway.

Conversely, if an omitted creditor loses the opportunity to receive money through the bankruptcy, the omission matters a great deal. Under these circumstances the failure to include the creditor means the debt cannot be discharged and the debtor is stuck with paying the debt. Intentionally omitting a creditor can also be grounds for a complete denial of bankruptcy discharge, so it is important to include all of your creditors in the bankruptcy process.

There are many myths circulating regarding bankruptcy. One of the most popular myths is that a bankruptcy debtor can pick and choose which debts are included in the bankruptcy discharge.  This myth is simply the result of a misunderstanding of the discharge process. When you file bankruptcy you are required to honestly disclose all personal financial information to the best of your ability. That means listing all of your income, expenses, assets, and debts in your bankruptcy schedules. Intentionally failing to list a debt is a very serious matter and the bankruptcy court could deny your discharge if you are less than honest.

In many cases a bankruptcy debtor has a good reason for wanting to continue paying on a debt. The most common reason is to retain property used as security for a loan (e.g. a car or house loan). In bankruptcy, secured property must be paid for or returned. Fortunately, the bankruptcy code allows the debtor to continue paying the secured creditor and keep the property. If you are interested in keeping secured property, discuss your situation with your bankruptcy attorney.

In other cases a debtor may want to continue to pay an unsecured creditor. This is normally the case when the discharge of a debt in bankruptcy will cause financial harm to a co-debtor. For instance, you may owe money to a family member that you want to repay. The bankruptcy discharges the legal obligation to pay the debt, and enjoins the creditor from seeking collection. However, while the bankruptcy prevents your family member from asking for payment, it does not prevent you from making voluntarily payments after the bankruptcy.

The same voluntary payment principle applies to medical bills, credit cards, and any other financial obligation. Voluntary payments do not alter the bankruptcy court’s discharge injunction. A discharged creditor is forever prohibited from taking any action to collect on the discharged debt, including asking for payment, sending a bill or statement, or filing a lawsuit against you.

The Bankruptcy Code provides, “Nothing contained in. . . this section prevents a debtor from voluntarily repaying any debt.”  11 U.S.C. § 524(f).  Any debt that is discharged during bankruptcy can be voluntarily repaid. Creditors are still under the court’s prohibition against taking action to collect, but are free to receive payments made voluntarily by the debtor. The term “voluntarily” means free from creditor influence or inducement. A creditor may not send a bill or take any collection action against you.

Voluntary payments do not invalidate the discharge order and do not create a new legal obligation.  “Debtors who file under [Chapter 7] can dispose of their post-petition earnings as they choose, including voluntary repayment of debts otherwise dischargeable in bankruptcy.”  In re Hellums, 772 F.2d 379, 381 (7th Cir. 1985). You can pay back whomever you wish.