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 Dear
Bankruptcy Adviser,
I just filed Chapter 7 in April 2007. I had a credit account with one lender that I did not include in that filing, but they won't allow me to use the credit they have given me because I filed for bankruptcy. Is that legal? I know they view me as a credit risk, but my credit with them is spotless. In fact, two weeks prior to filing they increased my limit.
-- Cartier
 Dear
Cartier,
When you file bankruptcy you do not get to choose which
creditors to list and which ones to leave out. The reason is simple: Bankruptcy
offers you legal protection and the chance to eliminate a great deal of debt.
In return for those rights, you have to follow the rules -- one of which is that
you're not allowed to "prefer" any creditors over any others.
So,
unfortunately, what you did is probably illegal under the bankruptcy code. You
preferred one creditor over the others. (You did not commit an illegal act if
the credit card in question did not have a balance.) Cartier,
if you had an attorney file your case, you also have put your attorney at risk.
Under the 2005
bankruptcy law amendments, the attorney has more legal liability for clients
that lie. This is why many attorneys pull a credit report on their clients to
make sure that the client is disclosing all debts. However, credit reports do
not always reveal all creditors. At this point, you need to discuss this situation
with counsel. If you do not have legal representation, you might want to consider
hiring an attorney.
When I interview prospective clients,
I ask repeatedly about undisclosed debts. I also
ask whether they have any credit cards with zero
balances. If the clients say, "yes,"
I start to tell them that all these cards will
likely be closed out. I say that each year, each
of their creditors looks at their credit reports
to see whether this particular client is worthy
of a credit increase. But once the creditor sees
the bankruptcy then they will likely close out
the account. This is what happened to you.
This
is a big deal, Cartier, and you will need to amend your list of debts to include
this credit card. It may not be easy. You may need to tell the trustee why you
did not include this debt in your original bankruptcy -- and you'll need to make
sure you don't lie.
You see, many people try to take
advantage of the bankruptcy system and this is
a drain on the system and irritating to the trustees.
Therefore, trustees tend to be lenient with those
who can file properly, have all their paperwork
delivered on time and follow the rules. Trustees
tend to be hard on those people who try to get
away with something, and they tend to be very
tough on people who try to lie their way out of
the mess.
Do
what's necessary to add the account to your bankruptcy filing. It's possible that
the trustee may let it slide. But he or she might become skeptical of your case
and keep it open for longer due to your legal misrepresentation. If that happens,
keep your cool. Be honest about why you made your mistake and then follow the
rules from then on. That's the way to get the best possible outcome.
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