It is common to refer to the most important feature in buying real estate as, “location, location, location.” Bankruptcy has a similar expression about two different points: Disclosure, disclosure, disclosure and notice, notice, notice. Since we’re on the letter N, and you read the title, I trust that you can figure out which one we’re discussing here.

Bankruptcy is sometimes described as an extraordinary remedy by the courts. What they mean is that bankruptcy is a privilege and you are getting a heck of deal. The trade off is that you must disclose everything in financial terms required by the court, and notify everyone relevant.

Who gets notice?

When you file bankruptcy, anyone you owe money to must be disclosed. That’s the disclosure part. But you also have to list their address among other information. This is because the court takes these names and addresses of your creditors and creates something called a creditor matrix. That’s a fancy way of saying it created a list of people you money to. The court mails each person on this list a notice of your bankruptcy filing so that the creditor is aware you filed. This provides each creditor notice of the hearing date of your 341 meeting of creditors and deadlines for them to act.

Why is notice so important?

First, you want everyone you owe to know that filed because they will stop contacting you. No more calls and threatening letters. And if they do contact you after you file, you may be able to bring a claim against your creditors in bankruptcy court. Kind of nice when a misbehaving creditor is forced to pay for your bankruptcy.

Second, failure to list a creditor may mean that you still owe them. For example, in Chapter 13 your creditors receive notice of your filing. The creditor then files a proof of claim describing what you owe them. Let’s say you have a credit card with Chase, and you owe them $20,000. Assume your Chapter 13 is a 10% plan, meaning unsecured creditors get 10% over the life of your Chapter 13, and the remaining 90% is discharged when you complete your Chapter 13. So Chase would be paid $2,000 (10%), and you get rid of $18,000. Good deal. But it only works if Chase was notified. If not, you will still owe Chase $20,000.

Third, intentional failure to list or notify anyone is the worst idea ever. I sometimes see this when clients owe family or friends. Whether it’s embarrassment or not wanting to “involve” this other person in the bankruptcy process, it will backfire. It’s fraudulent to intentionally fail to disclose and notice all creditors. If you’re playing these kind of games, you can lose your discharge in its entirety, meaning you will still owe all creditors. If you’re really playing games, you can go to prison.

Take advantage of this extraordinary remedy called bankruptcy, but just follow the rules. And the rule for today is notice, notice, notice.

Tagged as: creditors, discharge, family, fraud, fraudulent, friends, notice