Many clients ask if they can keep certain creditors out of the bankruptcy case, such as debt owed to a friend or relative. The simple answer is no. All creditors must be included in the bankruptcy case.
A personal loan that is due to a friend is unsecured, which is the same classification as credit card debt. The bankruptcy code requires that all unsecured creditor be treated equally. Therefore, if a chapter 13 debtor is paying a monthly trustee payment, which includes $100.00 that is to be paid towards unsecured debt, the monthly amount distributed to unsecured creditors must be distributed pro-rata to all unsecured creditors. Also, this means that the debtor cannot make payments directly to the friend or relative that is not included with the trustee payment.
Along this same theory, if a debtor is only having problems with their credit card debt and not their house, the house must be included as an asset and the mortgage company must be included as a secured creditor. However, the inclusion of the house and mortgage does not mean that the house will be taken by the bankruptcy trustee. Quite the contrary, it is extremely unusual for the court trustee to take someone’s property. However, if the debtor is behind with their mortgage payments and they are unable to cure the arrears, typically the mortgage company will be permitted to pursue their foreclosure action.
The debtors must also include their auto as an asset and the auto finance company as a secured debt. It is very unusual that the court trustee will take the debtors’ auto. If the debtor is in arrears with their finance payments and cannot cure the arrears, typically, the finance company will be permitted to repossess the auto.
If you wish to contact New Jersey Bankruptcy Expert Robert Manchel, please call 1 (866) 503-5655 to discuss how creditors are treated in bankruptcy and how you may be able to file for bankruptcy protection.