Monday, December 11, 2006

Consequences of"forgetting' a loan in bankruptcy filing

Consequences of 'forgetting' a loan in bankruptcy filing:

  • Nothing. This is highly doubtful because all your creditors have to do is look at your credit report to determine if there are any additional creditors you did not list on your bankruptcy petition. But there are so many people in the system that not everyone can be checked, so it is a statistical possibility you can slip through the cracks and get away with it.
  • Petition amended. If you are discovered to have unlisted creditor(s), the trustee may require you to amend your petition and list the creditor as you should have done in the first place.
  • Bankruptcy challenged. If you have unlisted creditor(s), especially if you have a large balance or there are other reasons to suspect fraud, the creditors you have listed may file a motion with the court. Your records will receive close scrutiny and you may not receive bankruptcy discharge at all.

The only way you can actually keep a credit card is this: It must have been without a balance for a long time. In other words, you don't have to list a credit card if there's no balance. If you recently paid off the balance and then didn't list it, that's fraudulent behavior. It's known as a "preference," as in, you preferred to pay off one creditor as opposed to the others. Preferring is illegal and the trustee can require those assets be brought back into the bankruptcy proceeding in order to be used for all creditors.

To reiterate, if you have a card that doesn't have a balance and hasn't for some time, you don't need to list it on your petition. Now, suppose the issuer of the card checks your credit because they are thinking of making you an offer for additional credit and they discover that you've filed bankruptcy. Even though you're not carrying a balance, they may think that you're more of a risk and they may close the account. They may not.

The best way to keep a card for emergencies is to get a card, use it for a while, then stop using it. Then, if and when you ever do file bankruptcy, your card with zero balance is less likely to be canceled because you'll have a history of paying your balances. Oh, and whatever you do, don't go on TV to brag about it.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "bankruptcy" as the topic.


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