“Including” debts and collateral in a bankruptcy

One of the most common questions clients ask during a bankruptcy consultation is whether or not certain debts and collateral (cars, home, campers, motorcycles, appliances, furniture, etc.) need to be “included” in their bankruptcy. This issue warrants some clarification, as the term “included” is used differently by clients and bankruptcy attorneys.

The first manner in which this issue arises is when clients ask if certain debts or creditors can be “excluded” from their bankruptcy because they are current on their payments, and the answer is no. The bankruptcy laws require that all debts owed as of the date of the filing of a bankruptcy case must be listed in the petition, irrespective of the status of the account. This includes debts owed to family members, medical bills, payday loans, credit cards, mortgage companies, taxing authorities, and car lenders. It matters not that you’ve been current on your payments to that Visa card and you’d like to keep it even after filing your case so you have a card “just in case,” which is the concern that usually prompts the question regarding “excluding” a creditor from a case. The answer, unfortunately, is that the account must be listed and in the case of that credit card, it will be closed. Not so with all creditors, though, and this is a conversation you can have with your bankruptcy attorney so the particulars of your case can be fleshed out.

The second way in which this issue comes up is when chapter 13 clients ask if certain debts can be “excluded” from a chapter 13 plan, or wonder whether a certain creditor can be “included” in their plan. The use of this term can be bit confusing because all secured (cars, houses, property taxes) and priority (federal taxes, child support) creditors are “included” in the sense that they are all listed in the plan, but the distinction is that not all of these creditors will be paid through the plan. What that means is, some creditors will continue to receive payments from you directly (“outside” the plan), and some will be paid by the trustee from monthly payments that you pay to him or her for that purpose (“inside” the plan). The decisions regarding whether a creditor is paid inside or outside the plan are determined by your attorney and are based on discussions you’ve had regarding your intentions with the collateral. For example, are you surrendering or keeping your home and your car? Do you wish to keep and pay for the appliances or furniture, or give them back? Your desires with regard to keeping or surrendering collateral have a tremendous impact on how your creditors will be treated in your case.

It is also possible in some cases to modify the interest rate and total amount repaid to certain secured creditors, and in those cases they must be paid for through the plan. All of these details must be set forth clearly in your plan so the court, the creditors, and the trustee all understand how your creditors will be treated during your case. That is, the manner in which they will receive payment, the amount they will be paid, or whether or not they will be getting their collateral back. This can all be done in a rather straightforward process with proper representation. Visit BaileyGalyenbankruptcy for more info.

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