By Dave Kelly, Minnesota Bankruptcy Lawyer
No Such Thing as a Partial Bankruptcy
I keep hearing from people who want to file a partial bankruptcy. The trouble is that bankruptcy is a 100% deal. If you are in at all you have to be all in. Often someone will call me and what’s on their mind is that one creditor who won’t leave them alone. All their financial affairs seem to be in order except for one creditor. What they want to do is somehow file just on that creditor and leave the rest of their debts alone. The trouble is that the law won’t allow you to do that. There is no such thing as a partial Chapter 7 or Chapter 13 bankruptcy.
All Creditors Must Be Treated (or Mistreated) Equally
In Chapter 7 or Chapter 13 bankruptcy, you are required to list all of your debts and all of your assets. You are not allowed to say you want to get rid of certain unsecured debts but still pay others. The authors of the bankruptcy code believed in equality. It has always been a general principle of bankruptcy law that all the unsecured creditors are to be inconvenienced equally. If there are assets to be distributed to the unsecured creditors, they each get a proportionate share based on the amount of the debt.
Debts You Need to Keep
There may be certain debts that you need to keep, such as your car loan or your mortgage. If you want to keep your car, you have to keep paying the car loan. If you want to keep your house, you have to keep paying your mortgage. The car loan and the mortgage have to be listed in the bankruptcy, but usually you can make arrangements to keep paying them anyway.
Notice that above, where I was talking about treating creditors equally, I was talking about unsecured creditors. Secured debts are a different matter. Secured debts such as a home mortgage or a car loans are considered to be necessities of life. The bankruptcy trustee will usually expect you to keep paying them. If the secured debt is for a boat or a motorcycle, however, you will probably be expected to stop paying and surrender the collateral to the lender. You can’t get away with claiming you are too poor to pay your creditors EXCEPT you can still afford the loan for a boat or motorcycle. Take a look at my post about Harleys. Also see my post about boats, motorcycles and horses.
Keeping Your House and Car
If you want to keep your house or your car or both, the bankruptcy trustee will be fine with you continuing to make payments on the mortgage or car loan. There is a thing called a reaffirmation agreement which will reinstate the debt as if the bankruptcy never happened. Generally I am against having my clients sign such agreements. They usually have to be approved by a judge, and the judges don’t like them either. Ordinarily the lender will be glad to receive the payments and glad to let you keep the collateral, so the reaffirmation is not needed. Here’s what I had to say about reaffirmations in an earlier post. Also check out my pages about keeping your car and keeping your house.
Debts You Can’t Get Rid Of
There might be some other debts that you would like to get rid of, but the bankruptcy won’t make them go away. Student loans and recent tax debts would usually be in this category. A good lawyer will explain to you which debts are going away and which are not; and will also explain common tactics for what to do with the ones that are not going away.
Better call Dave: 9 52-544-6356
