In New York bankruptcy, debtors are required to list all of their debts in their petitions and schedules. This is true for both chapter 7 and chapter 13. On the bright side, though, debtors who forget to list a debt will suffer few consequences if they file in chapter 7 and have no assets for the trustee to liquidate. Problems arise if there are assets or the case is in chapter 13. Of course, listing all debts doesn’t help if forgotten or unknown creditors come out of the woodwork, which is a reason to use a “pot plan” over a percentage plan.
However, even if the Bankruptcy Code didn’t require debtors to list all of their creditors, there are a handful of compelling reasons to do so anyway.
(1) Creditors won’t know about the automatic stay. It’s one thing to go after creditors that violate the automatic stay against collecting debts owed by debtors in bankruptcy, but it’s another thing if the creditors don’t know about the bankruptcy filing in the first place. Creditors that aren’t notified of the bankruptcy are likely to be the last to know that the case was filed, and as a result they may continue collection efforts after they would have stopped. Also, just because a discharge order is good against unknown creditors in a no-asset case after bankruptcy doesn’t mean it’s not easier to inform them of the filing rather than let problems arise.
(2) Some no-asset cases turn out to be asset cases. For example, a debtor who makes a fraudulent transfer of property to another party before filing bankruptcy might believe the case is a no-asset case, but once the trustee avoids the transfer, it becomes one. Naturally, the debtor must not be engaging in actual fraud, or else the case will be dismissed and the debtor might face other penalties. Once the no-asset case becomes an asset case, the unlisted creditors are entitled to notice about a possible contribution from the bankruptcy estate.
(3) Bankruptcy can’t help debtors stop garnishments. When a creditor obtains a judgment in court (usually state court) against a debtor, it can ask the court to garnish the debtor’s wages to repay the debt. Under the Bankruptcy Code, this is a collection effort, so when the debtor files bankruptcy, the garnishment order is stayed. If a debtor fails to list a debtor with a garnishment, then it will continue.
Ultimately, the benefit of identifying all creditors is giving them notice so they will comply with the bankruptcy filing. Ensuring this is handled properly benefits from the advice of an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices acts Bruce Weiner for a free initial consultation.
