When is a Bankruptcy Claim Contingent, Unliquidated, or Disputed?
The process of filing for bankruptcy requires a thorough and complete listing of all your debts, so they can be addressed by the court. Any debts not listed in your bankruptcy filing may not be discharged – in other words, those debts may not be canceled with the others. For this reason, it is helpful to get solid legal advice when considering bankruptcy. Your bankruptcy attorney will discuss all possible types of debt with you and help to ensure nothing is left out of your filing.
What Is Discharged Debt?
When a debt is discharged in bankruptcy, the slate is wiped clean as to personal liability of the bankruptcy filer. However, the debt could be enforced against any co-maker and liens may be enforced.. The filer no longer owes the debt, and the creditor must cease trying to collect it.
Some assets could be liquidated, which are called “non-exempt” assets. Most individuals keep their assets that are “exempt.” Essential assets, like a house, furnishings, vehicle or retirement funds, are generally retained as exempt assets.
Keep in mind that not all debts are dischargeable. Certain kinds of debt, like student loans, government or tax debt, alimony, child support, or other debts a person was required to pay in a divorce decree, are typically not discharged in bankruptcy. There are a few exceptions, and your attorney may suggest one if they think it’s appropriate for your situation, but for most people, these are not viable options. If you have non-dischargeable debt, you should consider possibilities such as negotiating with creditors, reorganizing your debt, or a Chapter 13 bankruptcy in which your debts are consolidated to give you a lower monthly payment.
There are also several kinds of debt that people often forget about or don’t realize they need to include, so we’ll go over those now:
Contingent Debt
This can seem like an odd type of debt because it’s an amount you may owe to someone in the future but don’t currently owe. As a result, it’s very common for filers to think they don’t need to include contingent debt, but this mistake can cost you money later on.
A good example of contingent debt is when you have cosigned a loan for someone else, like a child going to college. You don’t owe anything on the debt, the original signer does. However, if the primary signer defaults on the loan for any reason, you will become responsible for the debt. If you include this potential debt in your filing, it’s possible it may be eliminated with your other bills, so be sure to mention any possible contingent debt to your attorney.
Unliquidated Debt
Unliquidated debt is similar to contingent debt in that you don’t currently owe it but might in the future, with the stipulation that there’s no clear way to calculate exactly how much you might owe. For example, if you are being sued in civil court for any reason, it’s possible that the court may find a judgment against you, but you might not know for how much. The jury could be generous to the plaintiff or only give them a minimal amount. That’s an unliquidated debt. In addition, you will also probably owe some legal fees for the court case, whether you win or lose, but you won’t know how much until the case is over. That’s another unliquidated debt.
Disputed Debt
This is a very real and calculable debt that you disagree with for some reason. It could be a charge you believe is fraudulent. For example, you might have made $3,000 in charges on your credit card but have no idea where another $1,000 charge came from. In other situations, you might not disagree with the actual charges but with the interest rate charged by the creditor. If you were initially promised a 10 percent interest rate, then got charged 25 percent interest, you may want to dispute that amount.
When listing a disputed debt, you need to list the amount the creditor claims you owe on your bankruptcy filing. However, you can continue to fight these charges. When your bankruptcy is completed, it’s possible that the entire amount will be discharged, whether or not you owed it.
How to Get Out Of Debt
There are many options for discharging or restructuring your debts, including multiple kinds of bankruptcy. However, in most situations of personal financial difficulties, there are three main options:
- Chapter 7 bankruptcy eliminates all or most of your debt by liquidating your “non-exempt” assets to pay creditors. Most necessities are “exempt” and not subject to liquidation. If you can continue to make payments on necessary items like your house or car, you can normally keep them, depending on the amount of equity. If you have any non-exempt assets that are liquidated, most remaining debts are discharged.
- Chapter 13 bankruptcy allows you to retain ownership of your assets but requires that you continue paying on all or most of your bills. Your debt will be consolidated, and a combined monthly payment will be determined based on your income. If you have a very large amount of debt, the court may discharge some of it while still expecting you to make payments on what remains.
- Creating a repayment plan outside of the bankruptcy system. Sometimes it’s possible for your attorney to talk creditors into lower monthly payments with the agreement that you will start paying them again. You may also be able to consolidate your debt or argue for a decreased interest rate. This will allow you to avoid bankruptcy on your credit report, but you will have to be able to continue making payments.
New Mexico Financial and Family Law: How Can a Bankruptcy Attorney Help?
Learning how bankruptcies work is just the start of resolving your debt. You’ll also need to decide whether you want to pursue bankruptcy or pay off collections, then take steps to either file for bankruptcy or work with creditors. All of these options require knowledge and skill to navigate the challenges of financial or bankruptcy law. You don’t have to go it alone – contact New Mexico Financial and Family Law today at (505) 503-1637 for a free consultation to learn more about how we can help.