When I first talk with new bankruptcy clients one of the questions I hear over and over is, “do I have to go bankrupt on this debt? Can I leave this debt out of the bankruptcy?” It is often a debt for their car, or to a friend that they owe money to and almost always they are current with the payments. Credit card companies that are calling and driving them to distraction are not usually in the mix.
The short answer is that you have to ‘file’ or list all your debts/creditors. The Bankruptcy law is based on a couple of basic concepts. One of these concepts is to treat all the creditors of the debtor(s) fairly. Not all creditors are treated the same because there are different kinds of creditors. But all the creditors should be before the court and treated fairly.
The exact treatment of an individual creditor is determined by what ‘class’ they fall in according to the bankruptcy code. Example of the some of the different classes of creditors are; ‘Secured’ which means they have some kind of lien or security interest in property of the debtor. Mortgage debts and car loans are just two types of secured creditors. ‘Priority’ creditors, fall into one of several groups defined by the bankruptcy statute. Some examples of priority creditors are debts for domestic support obligations, taxes obligations or wages owed by the debtor to someone else.
To get back to the question, a debtor has to file and disclose all their debts, but that does not mean all their creditors will be treated the same. Depending on the exact situation of the debtor, it might be okay to treat the car loan differently and keep the car by reaffirming the debt. However, the debtor’s ‘fresh start’ should not be endangered, and that is a topic for another day.
Carroll & Ferguson, Attorneys at Law