What Debts to Include in Bankruptcy

exclude debts


Bankruptcy lawyers know that all debts need to be scheduled.  Clients think or hope that they get to pick and choose.

Every effective bankruptcy lawyer needs a line, a phrase, or a story to squelch the client’s instinct to exclude things from their bankruptcy filing.

Often the client’s desire to be less than forthcoming is born of fear or ignorance. Your job is to figure out which it is and overcome it.

Clients sometimes confuse “include” in the bankruptcy with “discharge” in bankruptcy.  When they tell you they don’t want to include a debt, they may be indicating that they expect to repay the debt.

Fine, I tell them.  We list everyone, because that’s what the law requires and you sign the schedules under penalty of perjury.

After filing you can pay who you will and what  you can.

The Bankruptcy Code specifically provides in §524(e) that nothing  prevents the debtor from voluntarily repaying a debt. That’s my favored solution, so if circumstances change in the future, the debtor is required to repay.

A debtor can also reaffirm a debt, if they choose, and the court approves the reaffirmation.

At the front end, tell the whole truth .

Sometimes, the debtor fears embarrassment or some sort of retaliation as a result of listing a debt in the bankruptcy papers.  Look for ways to alleviate the anxiety.  Perhaps alerting a family or friend in advance of the filing,  at a time of the debtor’s choosing, will lessen the hesitation to be forthcoming.

Perhaps you want to use a story of debtors who lost their discharge because they swore falsely that they had included every creditor.  It happens.

It’s a cardinal rule of bankruptcy that you list all creditors. Period.

In my office, clients who are unwilling to do so are shown the door.


List it or lose it: undisclosed assets


  1. A caveat to this post for debtors in business:

    If a debtor who is operating an LLC or other corporate entity is certain that he/she has personally guaranteed the debt of the business entity, that particular trade creditor should be scheduled in the debtor’s individual bankruptcy case. If the debtor is not certain that he/she has personally guaranteed the debt to the trade creditor, ask whether the debtor’s business needs the trade creditor to continue in business before you schedule that trade creditor in the debtor’s bankruptcy schedules. If the debtor’s business needs that trade creditor to continue operating, it could be malpractice to schedule the debt to the trade creditor, if you have no reason to believe that the debtor has personally guaranteed that business debt.

  2. Cathy Moran, Esq. says

    The flip side of the coin is equally a problem. What if your client says they didn’t guarantee the debt. Are you going to take their word for it? Prepared to accept the consequences if the client is wrong?

    I find the issue of personal liability for the debts of a small business entity to be an area of great uncertainty in which the client is seldom the definitive answer.