Frequently, clients sitting in my office will sheepishly ask me, "Do I really need to include all my debts in this bankruptcy?" This is a very common question. The way it is asked almost assures us the individual is hoping the answer is no. The answer, however, is YES! In fact one of the questions you are asked by the bankruptcy trustee when we go to court is a very straightforward one: "Have you listed all your debts?"
Why would you not list all your debts? The idea in bankruptcy is to eliminate your debts and to get you a fresh start.
This is how the question generally comes up. A client asks us if we she can keep one credit card for emergencies. NO! We understand the desire to keep a credit card but it is not allowed. We are then generally asked if the court will actually check on it. Truthfully, the court will likely never check on it but when you sign your bankruptcy paperwork you do so under oath. When you testify in court it is also under oath. Honesty is a requirement.
The question also comes up regarding family loans. "I owe my granny $10,000.00 but I do not want that in my case" or "I owe my buddy some money and I don't want him to know I am filing." Well, if it is a loan it is required to go in your case. Once people hear this statement, they usually come back with "Well it isn't really a loan. It was given to me but there is no paperwork and I have never made a payment to her." The goal of bankruptcy is a fresh start. If granny money is a gift, then it is a gift, but if it is a loan it goes in your case as a debt.
There is really no gray area when it comes to honesty and disclosure. Simply put, you must include all your debt in your case no matter how small or from whom the loan is made. We are totally sensitive to the fact that you might want to pay an individual back and keep them out of bankruptcy. Nobody wants to stiff Granny. We get it. But when you avail yourself to the power of the bankruptcy court by filing for bankruptcy relief you MUST follow the rules.
There are very real and very serious penalties for failure to follow the rules. You can lose the discharge of your debts. The court can also throw out your case. If your violations are serious enough, the case can be prosecuted through the U.S. Department of Justice where you will face stiff fines and imprisonment.
Mom's old admonition that honesty is the best policy is doubly true in the world of bankruptcy.