In your bankruptcy petition, you must list all of your debts, including the creditor’s name and address and the total dollar amount you owe, and indicate whether the debt is contingent, unliquidated, or disputed as of the date of filing.
An experienced bankruptcy attorney will help you determine the type of debts you have, but it is an important distinction you should learn because it could affect your finances during and after bankruptcy.
Contingent debts are unusual types of debt because they technically do not exist until and unless an event triggers liability. Just like it sounds, a contingent debt is one that depends on unknowable future circumstances.
The most common type of contingent debt is a debt someone else owes but for which you co-signed, such as a loan or a lease agreement. A co-signer doesn’t become liable to repay a debt until and unless the primary debtor defaults or fails to pay.
The primary debtor may never default, which means a co-signer’s liability would never be triggered. On the other hand, if the primary debtor does default, it’s impossible to know when and how much the remaining balance will be.
Even if you trust the primary debtor to pay the debt, or to pay you back in the event of a default, it is always in your best interests to list the debt to protect yourself from future liability.
Other examples of contingent debts are money judgments that could be entered against you as a result of a lawsuit or fines that could be assessed against you if you breach a contract.
Unliquidated vs. Liquidated Debts
Unlike contingent debts, unliquidated debts are debts that do exist, but the exact amount of the debt cannot yet be determined. Let’s say you have been sued for breach of contract and you will definitely owe the prevailing party a money judgment, but the jury has not yet determined the value of that money judgment.
The debt is unliquidated until the jury determines the value of the judgment.
Liquidated debts are the most common type of debt listed in bankruptcies. They are straightforward debts because you know the exact amount you owe as of the date of filing, such as judgments, mortgages, personal loans, car loans, credit cards, and medical bills.
Disputed debts are debts that you do not agree you owe or do not agree about the amount you owe. For example, you may believe you paid off a debt but the creditor insists you still owe a balance.
Alternatively, you may believe you owe less than the amount the creditor claims you owe. If the debt is disputed in any way, you should list the debt and indicate that it is disputed so that the dispute can be resolved in the bankruptcy.
It is important to list disputed debts so that you do not end up paying a debt you do not owe or more than you actually owe through either a liquidated asset or through a chapter 13 repayment plan.