Can I Leave Debts Out of My Bankruptcy?

When you file bankruptcy, you must list all your assets and all your debts. Leaving debts out of your bankruptcy can have consequences that range from inconvenient — such as having to file amended forms — to severe, like facing criminal charges for bankruptcy fraud. 

Most people who want to leave debts out aren’t criminal masterminds with evil intentions. They’re just trying to avoid a headache or save everyone some time. Leaving a debt out, though, usually causes the opposite: more time spent and more headaches, or worse. This article covers some of the most common reasons you may want to leave a debt out of your case and why the likely results aren’t worth the risk.

Reason #1: You Want To Keep Your Car, House, or Other Collateral

In your bankruptcy forms, you must list all your income and living expenses. This shows the court where your money is going each month. The goal is to demonstrate that you have enough money to afford the things you want to keep but not enough money to pay your other debts. 

Say you leave your car loan out of your bankruptcy. You’d also have to leave your car payment out of your expenses. This could make it appear that you have a big chunk of extra money available each month — money you could use to pay your other creditors. 

Also, if you don’t list your car loan, you won’t be able to enter a reaffirmation agreement with your auto lender. In a reaffirmation agreement, you agree to keep making your car payments after the bankruptcy, and your lender agrees to keep accepting your payments. 

You aren’t required to reaffirm any debt. But without a reaffirmation agreement, your lender’s options are limited. For example, if you stop making the payments, they can’t sue you for a deficiency balance. Some lenders aren’t interested in keeping an account open if they can’t legally enforce the contract. This means that, without a reaffirmation agreement, your lender can repossess the car, even if your payments are current. You can’t reaffirm a debt if you leave it out.

You can usually keep your car, house, and other collateral after filing bankruptcy. The requirements depend on the type of bankruptcy you file. In a Chapter 7 case, you can keep your car if you can afford the payments and the loan is current. You don’t need to leave the debt out to accomplish this.

Reason #2: You Want To Keep a Credit Card

There are many reasons you might want to keep a credit card even though you’re filing bankruptcy. For example:

• You need the card for work, travel, or emergencies.

• You have a long-standing good relationship with the creditor.

• You don’t want to lose the card benefits, such as airline miles or store discounts.

• You think the card will help you reestablish credit after your bankruptcy.

Even if all the above are true, you can’t keep a credit card after filing bankruptcy, period. 

If you don’t include your credit card on your bankruptcy forms, your lender will still find out about your bankruptcy. All credit card companies monitor your credit. When your card issuer learns that you’ve filed bankruptcy, they will close your account. This includes accounts in good standing and even accounts with no balance.

Here’s why: Lenders can face serious consequences if they violate the Bankruptcy Code’s automatic stay provision. With large credit card companies, this can happen accidentally, such as sending you an automated notice or statement. Closing your account is the safest way for companies to avoid this risk. 

In other words, leaving your credit card out of your bankruptcy won’t allow you to keep the card. True, a card with a zero balance isn’t technically a debt, so you won’t face any penalties for leaving out a zero-balance card. But the lender will still close the account. Also, if the reason the account has a zero balance is that you paid it off right before filing bankruptcy, your bankruptcy trustee can make the lender return that payment. The money won’t come back to you, though. The trustee will divide it among your unsecured creditors, which will make your bankruptcy case take much longer.

After your bankruptcy discharge, you’ll likely receive a flurry of credit card offers. This is because creditors know that after your discharge, you won’t be able to get another bankruptcy discharge for several years. These lenders will also use your bankruptcy as a reason to charge you higher interest rates. Part of the reason you must take a debtor education course before your bankruptcy discharge is to help prepare you for this reality and ensure you’ll make smart credit choices going forward.

Reason #3: The Debt Isn’t Dischargeable

Some types of debts can’t be discharged in bankruptcy. Examples include alimony, child support, student loans (in some cases), and some taxes. Why include a debt in your bankruptcy that you know you’ll still have to pay? One reason is to avoid the time and hassle of having to amend your bankruptcy forms after they’re filed. Also, if the debt is related to support or alimony, your former spouse could interpret you leaving it out as an attempt to avoid paying. This can lead to even more headaches for you as you try to explain yourself.

The most important reason to include non-dischargeable debts, though, is so your income and expense calculations will be accurate. As discussed above in the section about keeping collateral, if you don’t include these debts, you can’t include the amounts you pay for them each month in your list of expenses. If, for example, your child support payment, student loan payment, or tax payment isn’t included in your monthly expenses, it will appear to the court that you have much more disposable income than you do. This could hurt your eligibility for Chapter 7 or result in an unaffordable Chapter 13 plan payment.

Reason #4: The Creditor Is a Friend or Family Member

If you owe money to a friend or family member, it’s understandable that you might not want them to know about your bankruptcy. Not only is it a personal matter, but you also don’t want your friend to think you’re trying to get out of paying them. But, like the debts mentioned above, there’s a good chance your friend will find out anyway. It’s usually best to tell this person about your bankruptcy before you file. Your friend will probably react to the news better if it comes from you first, as opposed to receiving a notice from the court.

Explain that you’re legally required to list all your debts, including this one. You may want to assure your friend that you still intend to pay them back when you can. There’s no rule against voluntarily paying a debt after the bankruptcy is over. Let them know that being listed among your creditors doesn’t require any work on their part. ^[1] 

Let’s Summarize…

There are several reasons why you might be tempted to leave a debt out of your bankruptcy, but none of those reasons legally allows you to omit a debt from your case. Leaving a debt out of your case causes your income and expense calculations to be inaccurate, making it appear that you have much more disposable income than you do. In turn, this can cause serious problems in your case. 

Most creditors will find out about your bankruptcy even if they aren’t listed in your forms. Leaving a debt out won’t increase your chances of keeping collateral or a credit card. What’s more, intentionally leaving a debt out of your case could lead to a bankruptcy fraud investigation or even criminal charges.