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Yes, it is mandatory to list all your debts while filing for bankruptcy. When you ‘borrow’ money from your mother, it’s considered a debt, which you’re expected to repay. While filing for bankruptcy, you are supposed to fill the bankruptcy papers, known as petition or schedules. These papers are a financial statement, so, the information filled in them needs to be accurate. If your schedules are found to be inaccurate by the court, it can deny your case. Thus, you must list all your debts, including the one you owe to your mother, on your bankruptcy papers.
Listing the debt you owe to your mother can prove to be beneficial for her. According to IRS Publication Topic 453 – Bad Debt Deduction, if your debt gets discharged in your bankruptcy, your mother can say that you won’t ever be able to repay her the debt. The ‘uncollectable’ status of the debt will give her the ‘absolute proof of loss’, and she’ll become eligible for tax relief. Under normal circumstances, before deducting a debt as a ‘bad debt’, the lender would sue the debtor and would make reasonable efforts to get the repayment. But in this case, the discharged debt in bankruptcy will eliminate the need to follow those steps, for your mother. It is advisable to consult a tax advisor to determine her eligibility for the tax deduction. Further intimation regarding the necessity to list all the debts in the bankruptcy papers and the benefits of it for the creditors, can be known by consulting the best attorneys in Los Angeles and Dallas, TX, at Recovery Law Group. They can also be reached at 888-297-6203.
Now, if you’re worried that listing your mom as your creditor in bankruptcy papers might make her think that you don’t trust her and hurt her feelings, you must follow some of these practical strategies to avoid the embarrassment.
She’s your mom and thus, is completely aware of your struggles with money. So, your decision to file bankruptcy won’t be a surprise for her. Explain to her that you’re legally bound to list all your debts in the bankruptcy papers. Failure to do so can pose serious repercussions for you. Also, tell her that you’ll be legally allowed to repay the debts after bankruptcy. There are strong chances that your mother won’t ask you to repay the debt and will be happy to let you discharge your debts in bankruptcy.