Usually, money owed to a creditor is not discharged if you fail to list the debt. An exception is if the creditor learns about your case on time.
Last week’s blog post was about the importance of listing all debts in a bankruptcy case to write them off. Debts “neither listed nor scheduled” in the bankruptcy documents are not discharged (legally written off). Section 523(a)(3) of the Bankruptcy Code.
This rule raises several practical questions. Here are some everyday situations:
- You don’t list a debt, but the creditor finds out about your bankruptcy some other way.
- Your debt has been sold or assigned to a collection agency without your knowledge
- You don’t have good records of your debts, and you may not know some of their names and addresses.
Today we address the first of these.
Creditor Knows About Your Bankruptcy Case
If you fail to list debt, it’s still covered by your bankruptcy case if that creditor knows about your filing. The Bankruptcy Code does not discharge debt “unless such creditor had notice or actual knowledge of the case.” Section 523(a)(3)(A) and (B).
The ability to discharge debt does not mean that you can avoid listing a creditor on your debt schedules.
First, what if the creditor doesn’t find out or claims that it didn’t? You could end up owing the debt. It’s much safer to list the debt in your bankruptcy documents.
Second, you are required to list all your debts. Bankruptcy is not just about you and that one creditor. If you want the benefits of bankruptcy, you must play by the rules, which include listing all your debts.
If you have any reason for not wanting to list a debt, talk with your bankruptcy lawyer. There is usually a workable solution to your concerns.
Must Know about Your Case “In Time”
There’s an important condition to this “notice or actual knowledge” exception. Your creditor needs to learn about your case in time to participate in it.
So what’s the deadline for your creditor to learn about your case if you don’t list its debt?
There are three different possible deadlines for three different kinds of cases.
1. Proof of Claim Deadline
First, some bankruptcy cases allow creditors to file a “proof of claim.” That’s a document a creditor files at bankruptcy court documenting what it believes you owe. In Chapter 13 “adjustment of debts” cases creditors file proofs of claim to receive any money through your payment plan. In “straight bankruptcy” Chapter 7 “asset” cases creditors file proofs of claim to possibly share in the liquidation of any non-exempt (unprotected) assets. In these cases, the bankruptcy court mails out a formal notice giving a strict deadline to file proofs of claim.
In these cases, your unlisted creditor must learn about your filing in time to be able to file a proof of claim. Section 523(a)(3)(A).
2. Creditor Objection Deadline
Second, sometimes a creditor has grounds to object to the discharge of its debt based on fraud or similar act. The objection can happen in either a Chapter 7 or Chapter 13 case. In all cases, the bankruptcy court mails creditors a notice of the strict deadline to file an objection.
In these cases, your creditor must learn about your case in time to be able to file such an objection. Section 523(a)(3)(B).
3. Possibly No Deadline
Third, in other bankruptcy cases, neither of the two situations above applies. In fact that covers most Chapter 7 cases. Most have no assets to distribute because everything the debtor owns is exempt, or protected. The case is a “no asset” case. With nothing to distribute, the court does not ask creditors to file proofs of claim. So there’s no deadline to do so. Also, most creditors have no grounds based on fraud or similar bad actions to object to the discharge of its debt. So any deadline to file such an objection doesn’t apply. So what’s the deadline for an unlisted creditor to learn about your case so that its debt is discharged?
In some parts of the country, there is virtually no deadline in these kinds of cases. If you find out at any time about a debt you didn’t list in a “no asset” Chapter 7 case, you or your lawyer may be able to inform the creditor, and the bankruptcy will cover those debts. The bankruptcy will then include the liability in the discharge of debts that you received in your case. That may be true even if you have already completed your case.
But because the statute does not directly address this situation, your local court may interpret it differently. You might still owe the debt because you didn’t give the creditor notice about your bankruptcy. Again, talk with your bankruptcy lawyer as soon as you learn about a debt that you forgot to include for advice about your specific options.