Myths and Truths About Chapter 7 Bankruptcy: Part II
Myth:  Debtors can include some creditors in a bankruptcy and leave out other creditors so that some creditors can be discharged while debtors continue to pay other creditors.
Truth:  Debtors may not include some creditors in a bankruptcy but not others.  Any creditor who debtor owes money at the time of the filing of the bankruptcy must be listed in the bankruptcy petition.  The debtor may not pick the creditors he/she wishes to continue paying while other creditors will be discharged and will not receive any money.  The trustee will ask the debtor under oath at the 341 Creditor meeting whether all creditors have been listed.  If not all creditors who the debtor owes money are listed, the debtor will have to pay the additional court fees in order to amend the creditor matrix to make sure all creditors they are aware of are listed.  The trustee does not want some creditors to get preferential treatment.  If the balance on a particular account is $0, the debtor does not need to list that creditor on the petition.
A debtor can continue to pay on secured loans, such as a house or a car.  The trustee allows those debts to be paid back because they are secured.  Those debts do still need to be listed in the bankruptcy so the trustee knows what assets a debtor has at the time of filing.
Myth:  If a debtor has equity in a home, vehicle, or any other un-exempt property, they can transfer the property into someone else’s name so the trustee will not attempt to seize the equity.
Truth:  A debtor cannot transfer property to avoid the trustee or their creditors.  The debtor has an obligation to list in the Statement of Financial Affairs any transfers of property or any sales in the two years prior to the filing of the bankruptcy.  The trustee can void the sale or transfer of the property if within the two years prior to the filing.  If the sale or transfer is voided, the trustee can regain possession of the property, sell it, and use the money to pay the debtor’s creditors.  If the transfer is not listed in the bankruptcy petition, the debtor would be in violation of the bankruptcy rules.
If you have any questions, please contact a St. Louis or St. Charles bankruptcy attorney.