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WHAT TO DO IF YOU FORGOT TO INCLUDE SOME CREDITORS IN BANKRUPTCY BY MISTAKE.

When we file a bankruptcy the client has an obligation to list everyone that they owe in the bankruptcy schedules. This document is filed under oath and when you sign it you certify under penalty of perjury that it includes all your creditors. Clients often ask if they can just file some of the credit cards and not others. It just does not work this way. It’s not the debts that are being filed but the person. When a person files a Chapter 7 case or any other bankruptcy case all the debts are required to be listed and are dealt with in some way.

It is unavoidable that on occasion a debt will not be listed. Most experienced Maryland bankruptcy lawyers will either have the ability to get a credit report from all three credit bureaus or at least will require the client provide one. This tends to insure that most of the debts that are still valid will be included in the schedules. Credit reports however are not 100% accurate and certain creditors do not report to the bureaus. Individuals who have loaned money to the client, some doctors, small service providers are typically not going to be there. Ex-spouses or former partners may also be part of that often overlooked list.

Once the case is fully administered and closed there is really not much that can be done. Maryland bankruptcy courts have been pretty clear that a case will not be reopened just to add a creditor who did not make it onto the bankruptcy schedules. This does not mean that all is lost in a Chapter 7 case. The normal creditors will still be discharged in almost all cases. Most Chapter 7 cases are “no asset” cases. This means that there are no non-exempt assets for the Chapter 7 trustee to administer and distribute to creditors. In those cases the normal debts that would have been discharged in the Chapter 7 case will still be discharged. This however assumes that the omission is not deliberate.

In “asset” cases there is a deadline that is very important for creditors. It is the deadline for them to file a proof of claim. If the creditor does not get notice of the bankruptcy and therefore misses the deadline to file claims then this debt will not be discharged. Similarly if a creditor has potential fraud or other claims involving wrongdoing by the debtor then there is a deadline to file a lawsuit to determine if the debt will not be discharged. As in the case with the proof of claim deadline if the lack of notice causes the creditor to miss the deadline then they can still file a fraud, conversion, assault etc. type of claim in State Court and those debts will not be discharged.

Paying Back Family Members Just Before Filing Chapter 7 Bankruptcy.

What happens when we repay legitimate loans from family members shortly before filing a bankruptcy case? It is not unusual for a client to have repaid money to a family member, a friend or even a regular creditor within a few months of before meeting with counsel to file a bankruptcy case. The scenario is like this: Mom loaned me $4000.00 to get an apartment a couple of years ago and I have been paying her back $200.00 a month for the last year to repay the loan. Or, I just got my tax refund and repaid my brother the $2,000.00 loan he gave me as a down payment on my car”

Normally there will be no documentation of this as a loan and in often if you would call Mom or Brother they might say her daughter can pay back the money if they can or even that there is little expectation of repayment at all. Assuming the client really did borrow the funds. There nothing wrong with paying back a real loan to family members or others. Once you file bankruptcy the process has as one of its functions a mechanism to make sure all creditors are treated fairly. For regular creditors like a Visa card if you pay back more than $600.00 within 90 days before a bankruptcy is filed those funds can be recovered for the benefit of creditors. With relatives this time period is expanded to 1 year from the date the bankruptcy is filed.

The client is often surprised: “Mom really did loan me the money”. The purpose is not to punish you or the family member. The purpose of this feature is to make sure creditors we like don’t get a better deal than the ones we don’t care about. There are defenses to preferences as these recoveries are called. The ordinary curse of business defense in the case of family members will not be of much help since loans between family members are probably not “in the ordinary course of business”.

In most cases a relatively small preferential transfer to a family member may be so small that it is not worth it for the Chapter 7 trustee to go after. An experienced Maryland Bankruptcy lawyer can help you evaluate the risk associated with these repayments. An experienced Maryland Bankruptcy attorney can also help you figure out other options to deal with the transfers such as determining whether it would pay for the chapter 7 trustee to go after the relative. There are other options including a negotiated repayment plan by the relative or by the debtor and the possibility of a reduction of the total that needs to be repaid. An experienced Maryland bankruptcy attorney might even be able to help you insulate the transaction legitimately from being recovered, with proper planning.

Is it Morally Wrong to File Bankruptcy?

As a Maryland Bankruptcy Attorney I find myself dealing with great emotional distress that clients feel when they first start contemplating bankruptcy. Clients feel badly about their inability to pay the bills and to meet their obligations. I very often hear when we first meet how they never expected to have to do this. They feel it’s somehow wrong for them to get help with the bills. Often clients tell me: “I was taught to pay my bills”, or “I had a 700 credit score for many years”, or “My parents have told me not to file bankruptcy because it is wrong”. Some clients even feel it is “unchristian” to relieve the yolk of debt they are burdened with.

It is normal to feel badly about our mistakes. Even if it is not our fault it is understandable that we feel unhappy when we have made agreements we not able to keep anymore. If you feel badly being unable to pay your debts, it is understandable. Doing nothing about it makes things much worse.

Bankruptcy is designed to help the honest debtor who finds himself unable to properly take care of him and his family because of unmanageable debt. The bankruptcy discharge allows you to start over financially and to be once again a productive and functioning member of society. Our society does not benefit from having a group of citizens who cannot provide for their needs or who are doomed to live worse than everyone else for most of their lives because they have debts that cannot be paid. The decision to deal with the debt is often a matter of priorities and pride. I have found that client religious or not feel strongly that their family and the needs of the family should come first, ahead of bills that cannot be paid. For those who are religious it is hard to imagine a loving father who would counsel his children to put the credit cards first, ahead of his daughter’s children.

The concept of a bankruptcy has biblical support. In the Old Testament we are told that we should forgive our debtors every seven years: “At the end of every seven years you shall grant a release. And this is the manner of the release: every creditor shall release what he has lent to his neighbor or his brother, because the Lord’s release has been proclaimed”.  Deuteronomy 15: 1-3. The seven year discharge of debts is nicely codified in our bankruptcy Chapter 7 which originally allowed a debtor to get a bankruptcy discharge once every 7 years. Later it was shortened to 6 years. In 2005 it was changed so that you had to wait 8 years for a Chapter 7 discharge after obtaining one in a prior case.

Often pride is our worst enemy. Most clients agree once they have a chance to reflect what is most important to them family, and if they are religious God then family come first ahead of the bill collectors. At Broumas Law Group our Maryland Bankruptcy lawyer with over 35 years experience can help you figure out if Bankruptcy is your family’s best option.

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