Bankruptcy Blog

A lot of clients ask me if they have to list all of their credit cards in their bankruptcy.  Usually they are asking me this because there is a card they want to keep -  a card that has a low balance, or a gas card that they pay off each month.

The Bankruptcy Code requires that all debts be listed and at the bankruptcy meeting all debtors must attend, the Trustee is going to ask whether all debts were listed, and the answer by the debtor is given under oath.  If you say no, the Trustee is going to ask you amend your bankruptcy petition.  If you say yes, and that is not true, you are lying under oath.

Even if you don’t list a credit card, most credit card companies and other creditors have authorization pursuant to their credit agreement with you to pull your credit.  Usually they pull it monthly.  When they see that you have filed bankruptcy, the vast majority of these creditors will close your account anyway - even if you did not list them on your bankruptcy.  And if you have not listed them on your bankruptcy you will not be able to discharge the debt.

The debt must be listed on your bankruptcy in order for it to be discharged, so if you have a balance on the card you should list it.

A few creditors may allow you to keep the card if you did not have a balance on it.  You are not required to list a card that has a zero balance on your petition.  However, you should NOT pay off a card prior to filing bankruptcy just to see if you can keep it because you could end up paying it off and still having the card canceled by the creditor when they see you filed bankruptcy.

Judge France in the Middle District of Pennsylvania Bankruptcy Court recently ruled that the Chapter 13 Trustee could not have it both ways.  Just because the Means Test happens to help a debtor, it does not mean the Means Test is wrong.

In In re: Hayes (1:08-bk-00474), the Court had to address the issue of what expenses could be deducted in the Means Test.  The Means Test provides for the deduction of certain expenses.  Not all expenses are deductible, but car payments and mortgage payments are two that are permitted.  The higher your car payment and mortgage payment, the lower your disposable income.  The lower your disposable income, the lower your Chapter 13 payment.  If you don’t have any disposable income, you most likely qualify for a Chapter 7.

The Hays filed a Chapter 13, and used as part of their expenses a mortgage that they intended to discharge in the bankruptcy.  In other words, they were abandoning in their house and had no intention to keep it - and that was not a secret - they informed the Court of this fact.  The mortgage payment was fairly high, and it reduced the Hays’ disposable income.

However, at the time that the Hays filed their bankruptcy, the house had not yet been foreclosed on, and the Hays were obviously still required to make the payments under the contract until such time as the bankruptcy court granted them their discharge at the end of the case.  Even if your house is foreclosed on, you could still be liable forany “deficiency” - the difference between your mortgage balance and the price the house sold for - unless you file bankruptcy and that debt is discharged.

The Trustee objected, stating that the Hays could not use their mortgage payment as an expense, since they were not going to have it in the future and they knew they were not going to have it in the future.  Judge France disagreed, stating that the Bankruptcy Code specifically states that all debts which are “contractually due” as of the time of the filing of the petition can be deducted as expenses on the Means Test, regardless of whether the debtor intends to reaffirm the debt or discharge it and return the collateral (assuming of course that the debt is the kind which can be deducted on the Means Test).

What does this mean for you?  If you are thinking about returning a vehicle or walking away from your house, go a see a bankruptcy attorney first.  It may be best to file first, and return later.  The difference could be a Chapter 7 instead of a Chapter 13.