Sometimes during the course of a Chapter 7 bankruptcy, mistakes are made at the time the petition is filed. If you have a large number of unsecured creditors, it is possible that in your haste to declare bankruptcy you forget to list one of those creditors when you file.
When a creditor is left out of a bankruptcy filing, they are not provided with notice of the proceeding. That means your case could be closed and your discharge could be in your hand without the forgotten creditor ever getting wind of it. This oversight can quickly become a major thorn in your side if that creditor attempts to collect against you after your discharge.
WHAT HAPPENS WHEN YOU LEAVE A CREDITOR OUT OF YOUR CHAPTER 7 BANKRUPTCY?
Remember, in a basic Chapter 7 bankruptcy the trustee in your case will accumulate and sell off all of your non-exempt assets. Whatever proceeds are made from these sales will be paid to your unsecured creditors at the end of the bankruptcy case. These payments rarely if ever cover the full amount owed to your unsecured debtors and at the end of your bankruptcy, any unsecured debt that remains unpaid will be discharged.
That is what happens with creditors who are part of the bankruptcy process, at least. What happens with creditors that are omitted depends on two things:
- Whether the creditor is secured or unsecured
- Whether you had any non-exempt assets
Secured debts are not discharged through bankruptcy, but unsecured debts are. If the omitted creditor in your case was unsecured, what happens next will depend on whether or not you had any non-exempt assets in your bankruptcy estate.
Most Chapter 7 bankruptcies are “no asset” bankruptcies. This means that the debtor has exemptions that apply to what property they still have and that there were no non-exempt assets for the trustee to sell. In a no asset bankruptcy, the courts will consider unsecured creditors discharged even if they were omitted from the filing. This is because even they had been notified of the case there were no assets for them to share in to begin with.
However, if you had non-exempt assets that were sold and the proceeds were split among your unsecured creditors, the omitted creditor in your case would have lost out on his or her share. Now that that money is long gone, there is no way for the omitted creditor to be paid their share. That is why in that case their debt would not be discharged. Because the debt isn’t discharged, the omitted creditor can take steps to collect against you after even though your other debts discharged.
HAVE YOUR CHAPTER 7 QUESTIONS ANSWERED BY A NEVADA BANKRUPTCY ATTORNEY
There are a lot of steps to take to successfully file for bankruptcy protections under Chapter 7 of the bankruptcy code. Rory Vohwinkel is an experienced Nevada bankruptcy attorney. He has years of experience representing debtors in Nevada bankruptcy courts. If you have questions about how a Chapter 7 bankruptcy might affect you, contact Vohwinkel Law today at 702-410-6279 to set up your free consultation.