What Happens When A Creditor Is Omitted From A Bankruptcy?
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:
First, if the debt is remembered during the bankruptcy, the debtor is required to file amended schedules and identify the creditor. It is important to ensure that your schedules are honest and accurate, so let your bankruptcy attorney know immediately if you remember an old debt.
Second, sometimes a debtor will discover a pre-bankruptcy debt after the bankruptcy case has closed. How this omitted debt is handled depends on the court and the circumstances. In some cases it may be prudent to ask the bankruptcy court to reopen the bankruptcy case and discharge the debt. In other cases the debt may be considered discharged as a matter of law – in other words, the bankruptcy discharge took care of that debt even though it wasn’t listed in the schedules. Finally, in some rare cases the debt cannot be discharged and the debtor is simply stuck with it.
The bankruptcy courts expect the debtor to be open and honest in describing assets and debts. 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. In cases where there are no assets for creditors, inadvertent omission of a creditor will not matter much. On the other hand, an omission matters a great deal in cases where creditors are paid. An intentional failure to list a creditor can cause that debt to be declared non-dischargeable and survive the bankruptcy. In extreme cases courts have denied a bankruptcy discharge because of the debtor’s intentional failure to list all debts.
In bankruptcy, honesty is the best policy. Fully disclose all of your assets, debts, income, and expenses to your bankruptcy attorney. If you forget something, let your attorney know as soon as possible. Your attorney can advise you on the best course of action.