Crucial Question: Can I Exclude a Creditor from My Bankruptcy Case?
In general, you must include every creditor in your bankruptcy documents. Most concerns you may have about this can be satisfied.
Legal Obligation to List All Creditors
You are required by law to list on your bankruptcy creditor “schedules” everybody to whom you legally owe a debt. And sometimes it is prudent to also include those to whom you may owe a debt but are not sure, in order to cut off their rights to pursue you later.
But Creditors Can Often Be Treated Differently within Bankruptcy
People have different concerns that make them think about excluding a creditor. It may help to know that bankruptcy laws allow a certain amount of flexibility which may satisfy your concerns.
For example, you may want to exclude your vehicle loan, or your home mortgage, or any other secured debt from bankruptcy because you want to keep your vehicle, home or other collateral. You ARE allowed, in effect, to exclude these kinds of creditors from the discharge (legal write-off) of your debts. You do have to inform such creditors about your case by including them on the creditor schedules, but they are immediately informed of your intention to exclude them from the discharge. They will be happy to keep accepting your money, and you will be able to keep the collateral.
A similar situation applies to debts that you are legally obligated to pay in spite of filing bankruptcy, like recent income taxes, and child or spousal support. You are obligated to include them on your schedules and thereby give them notice of your case. (The IRS and your state taxing agency may get notice of every bankruptcy case anyway.) But such creditors will know that your debt is legally excluded from the discharge, and generally know that they are listed because they must be.
If you are concerned how any of these creditors will react to getting notice of your bankruptcy case—such as an ex-spouse, or any other kind of potentially sensitive creditor—talk with your attorney about it. This will alert him or her and help avert potential problems. And it will usually result in you getting your concerns alleviated.
Creditors Can Also Often Be Treated Differently After Your Bankruptcy
Bankruptcy law generally allows you to pay creditors after your bankruptcy case even if the debt has been legally discharged. So if you, for example, have a “friendly creditor”—a family member, friend, or medical provider—who you feel morally obligated to pay, you are allowed to do so. Talk with your attorney about how to do so—and maybe even whether you should do so in the first place.
Excluding Questionable Creditors
You may not want to include a friend or family member who gave you money so that they don’t know that you filed bankruptcy. If that person genuinely gave you a gift that you do not legally have to pay back, that person is not a creditor who needs to be listed. But do not assume that is the situation; talk with your attorney about this so that you meet your legal obligations under bankruptcy law AND get your best interests served—so that you do what is right AND what is truly right for you.
For example, consider a “loan” which you were told you need to pay back “only if and when you can afford to.” If you’d rather not have that person know about your bankruptcy, can you skip listing him or her?
Talk with your attorney about whether the money you received was, in the eyes of the law, more likely a gift or a loan. If it was truly a gift, you don’t have an obligation to list it and tell the person about your bankruptcy. But if it was a loan, OR if there is a significant risk that it was a loan, then you would be obligated to list it.
Furthermore, if it was or might have been a loan, including it in your bankruptcy schedules would in most cases be in your best interest. The advantage of discharging whatever legal obligation you may have would almost always be worth the embarrassment of the person learning about your bankruptcy. And if you decide you do want to pay it back and are able to do so, you may even impress that person with the fact that you are paying him or her and nobody else. You may even be genuinely filing the bankruptcy case in part to be able to fulfill your moral obligation to the person; doing so is perfectly legal.