Usually if you don’t list a debt, it doesn’t get discharged. An exception is if the creditor still 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 a number of practical questions. Here are some common 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 don’t list a debt it’s still covered by your bankruptcy case if that creditor knows about the case. The Bankruptcy Code says a debt is not discharged “unless such creditor had notice or actual knowledge of the case.” Section 523(a)(3)(A) and (B).
This doesn’t mean that you can avoid listing a creditor on your debt schedules because you know it will find out about your case some other way.
First, what if the creditor doesn’t actually 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 3 possible different deadlines for 3 different kinds of cases.
1. Proof of Claim Deadline
First, some bankruptcy cases give creditors the opportunity 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 case 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 on the basis of your fraud or similar bad action in the incurring of the debt. This 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 essentially 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 simply inform the creditor and the debt is covered in your case. The debt is then included in the discharge of debts that you received in your case. That may be true even if your case is already completed.
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.