Kentucky Bankruptcy Law

Counsel with Care

“Can I leave my car debt out of the bankruptcy?”

This is the second most common question people ask me when considering a bankruptcy. It is not always a car debt, but they often ask if they can leave some specific debt out of the schedules. Sometimes they ask because they want to preserve some asset and they are concerned that reporting the debt in the bankruptcy jeopardizes their goal. Other times, it is because they want to make sure they can keep one credit card. They fear having some emergency that they must use credit to resolve or they get really good discounts at Kohl’s or Macy’s. Finally, sometimes people just want to repay a friend or family member who has helped them out.

The answer invariably is “no”. One cannot pick or choose what debts are “bankrupted”. All debts, even to poor Aunt Sally must be listed on the schedules included in the bankruptcy filing. What is required to be scheduled is found in Federal Rules of Bankruptcy Procedure 1007(b)(1) and there is no list of exceptions to liabilities (debts). Similarly, all assets have to be listed.

The way to address the concern of keeping an asset that is secured by a lien (such as a car debt) is to look at any arrears on the debt and consider a Chapter 13. The way to address the concern over having a credit card to deal with emergencies (or even discounts) is to assure debtors that they will likely be inundated with credit card offers even before the bankruptcy is closed out (note: in a Chapter 13, one must get court approval to incur new debt!). I encourage people to live without any credit, though. The way to deal with the concern about not leaving poor Aunt Sally high and dry is to note that a debtor can voluntarily repay any creditor they wish AFTER the bankruptcy is closed out. Doing so before filing creates a preference or fraudulent conveyance – both are bad. Doing so afterward has no restrictions at all. The debtor simply is not under any legal obligation to repay the debt and should not sign anything re-obligating themselves on the debt.

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July 11, 2012 - Posted by | Bankruptcy, Chapter 13, Chapter 7, Civil Procedure, Pre-filing planning, Property (exempt, reaffirm or surrender) | , , , , , , , ,

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