Can I keep some debts out of my bankruptcy?

Bankruptcy clients often wonder whether they can leave off certain debts on their bankruptcy filing. The short answer is “no.” The long answer? Also “no.”

This usually comes up where you have a #1 favorite credit card (triple bonus miles!) or a debt you owe to a friend or family member that you don’t want to wipe out. But the rules for unsecured nonpriority debts (credit cards, personal loans, etc.) don’t allow you to keep any debts out of your bankruptcy case, and leaving them out on purpose can ruin your case. So here are a couple of things you might need to know:

1. If you owe a balance, we have to list it. You can leave a credit card out of your bankruptcy only if there’s no debt owed on the card. If you owe even a dollar-fifty, we have to list in your papers. But chances are, whether there’s a balance on the credit card or not, the card issuer will close your account–many credit card companies check your credit report regularly and they’ll know if you’ve filed even if they weren’t listed in your bankruptcy.

But this doesn’t mean you should rush to pay off debts on credit cards so you can keep them. Payments made to a creditor in the 90 days before filing are called preferences, and they can be recovered by the trustee and distributed to other creditors. So any money you might pay to a creditor right before filing might end up costing them when they have to defend a preference lawsuit by the trustee. The lesson? You should probably just hold onto your money.

2. Friends and family you owe money to will have to be listed. When we ask a client to list their creditors, people often forget to list friends and family that they’ve borrowed money from. Or sometimes, they don’t want these people to know that they’re filing bankruptcy and they leave them off. This is a bad move. If you intentionally leave off a creditor from your filing, you may be denied discharge for withholding information from the bankruptcy court. Also, that stuff I mentioned about preferences a minute ago? Repayments to friends and family may be preferences (meaning the trustee can sue that creditor) if made a full year before filing.

Instead of letting you jeopardize your case, we’ll give you pointers on how to have that tough conversation with your mother-in-law where you tell her you’re wiping out your debt to her. (Tip 24: Leave the car running for a quick getaway)

3. You can pay back any debt you want after bankruptcy. Your bankruptcy case will wipe out your legal obligation to pay most debts. This means that once your case is filed, the creditor can’t take action against you (not even a “pretty please”) to collect the debt. However, if you want to pay a debt after your bankruptcy, nobody’s going to stop you. It’s none of the Bankruptcy Court’s business if it’s done after your case has ended.

The moral of the story? No secrets allowed if you want to make it through bankruptcy without any problems. Tell your attorney about any of the pitfalls that might be getting in your way and you should sail through bankruptcy smoothly. If you have any questions, just let us know.

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