It’s not unusual for a client or potential client to ask me if they have to list all of the people they owe money to. The question will come up either in the initial consultation or at the time we’re reviewing their petition and going over the schedules that list their creditors. Oftentimes, they want to avoid listing their landlord. They’re embarrassed about having to file bankruptcy and want to avoid other people finding out. Other times, they owe money to friends or family members and, again, they want to avoid them finding out.
My answer is always the same: when you file bankruptcy, the Bankruptcy Code requires you to list all of your debts. It doesn’t matter who they money is owed to or if you “plan on paying it back.”
A recent 7th Circuit Court of Appeals case highlights the dangers of not listing all debts on a bankruptcy petition. In In re Katsman, Ms. Katsman had filed a Chapter 7 bankruptcy. Katsman’s ex-husband’s son brought a lawsuit in bankruptcy court arguing that she should not receive a discharge because she “made a false oath or account” on her bankruptcy petition when she failed to disclose several creditors, including him. At trial Katsman admitted that she had left four creditors off her petition, but the bankruptcy court had found that her doing so was not fraudulent. The son appealed.
The Court of Appeals found that she had made other omissions in her petition, including real estate that she owned with her ex-husband and alimony payments she received. The appeals court found that “her many false statements bespeak a pattern of reckless indifference to the truth, implying fraudulent intent.” The court held that Katsman was not entitled to a discharge order. Now, not only will she have to repay the debts she owed to the creditors she didn’t list, she has lost any protection from the bankruptcy court for the debts she owes to her other creditors.
It’s important to contrast this result with In re Padilla, a Colorado bankruptcy court case which held that where there is a no asset case, even debts which are not listed are still discharged. The main difference between these two cases, is that the creditor in Padilla did not argue that the Padillas had fraudulently made omissions on their bankruptcy petition.
What I suggest for people who are concerned about friends or family members finding out is that they get in touch with those people before we file and let them know they can expect a notice in the mail from the bankruptcy court about the bankruptcy. They can still repay those debts, and they have fulfilled their obligation to list all of their debts.
If you have questions about how to deal with your creditors when you file bankruptcy, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy attorney. You can schedule an appointment by calling 303.331.3403 or by using our online scheduling system.
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