Privacy in Bankruptcy: What to Expect When Filing a Bankruptcy

When you’re considering filing for personal bankruptcy, the last thing you want is for everyone to find out. Many people are concerned about the loss of privacy that sometimes happens when they’re filing for bankruptcy and all of their private financial affairs become public record.

This is definitely a reasonable concern, but let’s look at the facts around filing for bankruptcy and what can happen to your privacy.

Privacy in Bankruptcy

When you file for personal bankruptcy, the documents you file with the bankruptcy court will typically contain some sensitive information and outline your financial affairs in detail. So you need to keep this in mind when considering whether to file a bankruptcy petition.

The documents you file with the bankruptcy court become public record, because public access to court records both helps the bankruptcy system run more efficiently and really increases public trust and accountability for everyone involved. Federal law, 11 U.S. Code 107, states that any documents filed in a bankruptcy proceeding must become public records that can be obtained by anyone.

According to bankruptcy law, debtors have to make a full disclosure of all of their financial affairs. This means submitting financial documents, like tax forms and paychecks, which often contain very personal and sensitive information about the debtor, including personal address, social security number, tax identification numbers, bank account numbers, employer’s name, descriptions of the debtor’s property and a list of any creditors and the claims they have made.

For this reason, debtors are often concerned that making these documents public record could lead to issues like identity theft, unwanted marketing or just embarrassment in general.

Protections for documents

Luckily, debtors do have some degree of privacy in bankruptcy. Federal law actually allows debtors to redact sensitive financial information or anything that could be used to commit identity theft or fraud. Bankruptcy judges can also seal court documents in some instances.

According to Bankruptcy Rule 9037:

“Unless the court orders otherwise, in an electronic or paper filing made with the court that contains an individual’s social security number, taxpayer identification number or birth date, the name of an individual, other than the debtor, known to be and identified as a minor, or a financial account number, a party or nonparty making the filing may include only:

1. The last four digits of the social security number and taxpayer identification number;
2. The year of the individual’s birth;
3. The minor’s initials; and
4. The last four digits of the financial account number.”

Bankruptcy counsel will often make sure to redact any sensitive financial information when they file bankruptcy documents with the court. Unfortunately, Rule 9037’s protections can be lost if the filer fails to redact the personal or sensitive information when filing.

Another federal law 11 U.S. Code 107(c)(1) states that “the bankruptcy court, for cause, may protect an individual, with respect to the following types of information to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual’s property.”

There is another type of privacy protection for bankruptcy called obscurity. This means that information about a bankruptcy case can only be made available to those who make an effort to obtain it. For example, someone who wants to view a bankruptcy record has to visit the court and request access from the clerk.

Electronic versions of bankruptcy records are part of the federal judicial system’s electronic document repository called Public Access to Court Electronic Records (PACER). To get access to a bankruptcy record through PACER, someone must go through the process of registering for an account and paying a fee for each document they get access to.

While anyone can sign up for a PACER account, the fees create more of a barrier to access of the records. Typically, only bankruptcy attorneys, court officials and lenders use PACER to access these records.

Other privacy concerns

You are required to list creditors when filing for bankruptcy, and they will be notified. Unfortunately, there are no federal laws preventing your creditors from obtaining and sharing personal or sensitive information about your bankruptcy.

Your employer might find out about your bankruptcy, but this depends on what type of bankruptcy you file for. For example, you are typically not required to list your employer in your bankruptcy petition in a Chapter 7 liquidation bankruptcy. But in a Chapter 13 payment plan bankruptcy, debtors typically pay a monthly payment that’s automatically withdrawn from their paycheck, and this process will probably alert your employer of your bankruptcy.

You should also consider that lenders and credit card companies will be able to see that you filed for bankruptcy from your credit reports. This fact will appear on your credit reports for 10 years.

Furthermore, marketers can get access to your bankruptcy court records and use your address or other personal information to send you ads for things like credit cards or credit improvement services.

That behind said, if filing for bankruptcy is the right decision for you, don’t let these privacy concerns dissuade you from filing or making a full disclosure to the court. Failure to be honest with the court can lead to both dismissal of your case and criminal liability.

It’s important to have a full understanding of all privacy concerns before filing for bankruptcy, but keep in mind that bankruptcy can also offer a lot of great benefits. Discuss these concerns with your bankruptcy counsel to make a full-blown plan for bankruptcy filing and decreasing any privacy risks.

If you’re interested in learning more about privacy in bankruptcy, feel free to check out Van Horn Law Group’s website here. The firm is very discreet in protecting the identity of their clients, and we can handle high-profile cases.