When you make the decision to file for bankruptcy, you have made the decision to have your debts discharged. You may wonder if there are certain debts you can conveniently leave off your filing. Is your favorite credit card giving you tons of airline miles with every purchase and you don’t want to lose it? Do you have a debt to a family member or friend and fear leaving them high and dry?
There are rules for unsecured debts such as credit cards and personal loans when it comes to bankruptcy. The simple fact is, you are not allowed to keep these types of debts out of your bankruptcy. If you leave them out on purpose, it can jeopardize your filing.
If you have debt, you must list it
Bankruptcy requires you to include all your debts. This includes the mortgage and loan on your car. The only time you can leave a credit card off your bankruptcy is when it has a zero balance.
Family or friends will need to be listed if you owe them money
Sometimes people do not want to list family and friends as part of their bankruptcy. They feel bankruptcy is a private matter. Because of this, they may decide to pay off family or friends and not unsecured creditors prior to bankruptcy. In both Chapter 7 and Chapter 13 bankruptcy, the debtor is not allowed to give preference to any creditor over another. If you pay off a personal debt within a year of your filing to a family member or friend, the trustee may take the money and redistribute it to creditors.
New debt prior to bankruptcy
There have been times when people try to use an unsecured credit card cash advance to get out of personal debt. If the credit card is going to be discharged anyway, then why not pay off a friend or family member that way? If this happens, the creditor may object to your discharge by making an argument that you took out the money with no intention of paying it back. This is called fraud and may deny your discharge case.
When you are going through the process of bankruptcy, there are no secrets allowed if you want a trouble-free bankruptcy. It is best to be upfront about all your debts to avoid any pitfalls down the line.