Do I Have to List Debts to Family and Friends in My Bankruptcy?

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The answer to this question is easy. It’s a flat YES. All debts have to be listed in your bankruptcy case. It doesn’t matter whether the debt is to a business like your neighborhood dry cleaner, a major credit card company like VISA or Mastercard, a bank, an automobile company, a home mortgage company, your father-in-law, your cubicle mate at the office or your poker buddy. If you owe any money you must list it in your bankruptcy schedules.

Here are some common questions bankruptcy attorneys hear from their clients on this sensitive subject. 

My friend/family member loaned me the money on my word, no contract or promissory note involved. Do I still have to list the debt?

Yes. Even if you have no paper that lists terms or has a signature on it, you still owe the debt if you agreed to pay it back. Because you owe it, you have to list it.

What happens when I list a debt I owe to a family member?

You will have to provide information about the debt just as you would your credit cards, medical bills and car loans. The name and address of the creditor, the amount of the debt, the type of debt, when it was incurred and the amount. The debt will be listed in the bankruptcy schedules that you file with the court. 

Will the friend or family member find out about my bankruptcy?

Yes. This is unavoidable. The court sends out a notice to everyone listed as a creditor or "party in interest" in the case.

This includes your friend or family member. The court will also send out other notices to creditors during the case. 

Can I pay my friend/family member before I file the case so that I don’t have to list them?

You can pay them, but you may still have to disclose that you paid the creditor close to the time you filed bankruptcy.

If so, there is a question on the statement of financial affairs, one of the documents you must file with the court, that addresses this. The bankruptcy laws are designed to treat similar creditors alike. For these purposes, credit cards, medical bills and loans from Uncle Carl are similar. If you pay one, but don’t pay the others, it’s called a “preference”. Depending on the timing, how much you paid, and the status of your exemptions, the trustee could force your friend/family member to turn over the money you paid. 

What if my family member/friend demands to be paid despite the bankruptcy?

Refer that person to your attorney, who will educate him or her about the automatic stay, which is designed to protect the debtor from most collection actions during the bankruptcy.

What happens if I don’t list a debt I owe to a family member or a friend?  

In general, any debts that are not listed in the bankruptcy paperwork will not be discharged even if they were otherwise eligible. That means that your friend/family member will be free to attempt to collect the debt from you after the bankruptcy is over.

Will the debt to my friend/family member be discharged?

Certain debts in a bankruptcy case are not discharged.

If your friend/family member thinks that the debt is not dischargeable, he will have to visit with an attorney of his own to evaluate that. If the debt is not automatically nondischargeable, or will not be declared nondischargeable by the court, it will be discharged by default.

Can I reaffirm the debt to my friend/family member?

It may be possible for you to reaffirm the debt. A reaffirmation is an agreement with the creditor that the debt will survive the bankruptcy and not be discharged. You must file a reaffirmation agreement with the court that must be approved by the judge. But, be warned, bankruptcy judges do not like reaffirmation agreements on unsecured debts.

Can I pay the debt even if it’s discharged and I don’t reaffirm it?

Yes. There is nothing in the law that would prevent you from paying the money back if that’s what you choose to do.

If the debt is discharged, there will be no legal obligation to pay it back, even though you may certainly and reasonably feel a moral obligation to pay it. There’s nothing wrong with that.