When you think about creditors, your mind goes to the companies that send you statements.  But when you’re filing for bankruptcy, the term creditor means far more than just the institutions to which you owe money.

According to Wikipedia, a creditor is a person, organization, company, or government to whom money is owed.

In other words, a credito is not just a company. A creditor can be a person or a government.

Like your Aunt Mary. Your mom or dad. Your brother or cousin. All of these folks can be considered a creditor.

When you’re going into bankruptcy (or just thinking about it), it’s important to consider every creditor past and present.

The Ghost Of Creditors Past

With respect to past creditors, part of your bankruptcy statements speak to payments made to others in the run up to your filing. If you’ve paid debts prior to filing your case, Section 547 of the U.S. Bankruptcy Code gives the trustee the ability to recover those funds and distribute them among everyone you currently owe money to.

For “outsiders” (anyone who’s not a family member or a friend) we look to payments made within the 90 days immediately prior to filing.  For “insiders” (relatives, business partners or corporations in which you have an ownership interest) the trustee will look back a full year.

If you paid back a family member in the past year, you may want to give a heads-up that the payment will be listed on your bankruptcy papers and the trustee may come knocking for the money.  A failure to voluntarily turn over the money may mean your relative gets sued in bankruptcy court.

These payments are called preferences, and the goal is to keep you from favoring one creditor over another.

Present Creditors

Part of the bargain you make in bankruptcy is full disclosure – you disclose all of your debts and assets in exchange for the protection of the bankruptcy court.  Fail to disclose, fail to get protection.  Pretty simple.

Once again, you need to disclose all of your debts.  That includes friends and relatives.  No excuses.

A failure to disclose all creditors is a false oath, which is a very bad thing in the world of bankruptcy.  In addition, failure to list a creditor may (under some circumstances) lead to that debt surviving bankruptcy.

In the end, it’s simple: tell the court everything, tell your lawyer everything, and notify everyone.  Even Aunt Mary.

Image credit: Leo Reynolds