Debt May Survive Discharge When a Debtor Fails to List a Debt in Bankruptcy:

It is required that a debtor list all of his or her creditors and their most current address in the bankruptcy schedules.  If they fail to do so, a judge may not discharge the debt.  Listing all debts is required so that the court can properly notify the creditors by mail.  Creditors have important rights in a bankruptcy, such as filing proofs of claim and objections, and not listing them deprives them of exercising those rights.

If a debtor forgets to list a creditor on their bankruptcy papers or carelessly misstates a creditor’s name or address, then the creditor will likely not be duly notified of the bankruptcy.  In that situation, the debt will most likely survive the bankruptcy.  There are exceptions though, and nuances depending on if the bankruptcy is a Chapter 7 or Chapter 13.

Requirement to File a Proof of Claim:

Just as a debtor must list all debts in their bankruptcy, a creditor must file a proof of claim in order to participate in the bankruptcy.  A claim must include documentation proving the exact amount of the debt including an itemization of the principal, interest, and other fees.  Essentially, creditors who wish to receive their “portion” of the bankruptcy estate must file a claim.  If the creditor does not receive notice, they have no way of knowing to file a proof of claim and are thereafter not included in payouts from the bankruptcy estate.

A proof of claim is always required in a Chapter 13 reorganization if a creditor wishes to receive any money through the payment plan.  In Chapter 7 “asset” cases, creditors also file proofs of claim to possibly share in the liquidation of any non-exempt assets.  However, most Chapter 7 cases are “no asset” cases, meaning there are no assets to liquidate and distribute because everything the debtor owns is exempt.  With nothing to distribute, the court does not ask unsecured creditors to file proofs of claim.

What Happens in a Chapter 7?

If a debtor fails to list a debt in a Chapter 7 bankruptcy, the result will often depend on whether the bankruptcy is a “no asset” or an “asset” bankruptcy, and whether the debt is secured or unsecured.

Even in a “no asset” bankruptcy, a debtor may still have secured creditors.  It just means that the value of the collateral on the loan is less than the exemption for that type of asset in that state.  Whether the Chapter 7 is an “asset” or “no asset” case, the secured creditors must be notified or else they can still collect after the discharge, including foreclosure or repossession.  It is unusual for a secured creditor to be left out of a Chapter 7 as most debtors are very aware of the debt and either want to reaffirm the debt or surrender the collateral in the bankruptcy.

For unsecured debt, it depends on whether the bankruptcy is “asset” or “no asset”.  In a “no asset” bankruptcy, unsecured creditors do not get anything from the bankruptcy.  If an unsecured creditor is left off the list, there is no real consequence since they wouldn’t have received anything from the bankruptcy anyway.  The creditor is not prejudiced by the omission, and most courts will discharge the debt even though it wasn’t included.

In an “asset” bankruptcy, unsecured creditors receive payments in proportion to the amount the debtor owes them.  As noted above, they must file a proof of claim in order to get that payment.  Since failing to list them deprives them of their rights, unsecured creditors in “asset” bankruptcies can still collect after the bankruptcy is complete.

What Happens in a Chapter 13?

The general rule is that debts not listed in a Chapter 13 case survive the bankruptcy.  In a Chapter 13 bankruptcy, creditors are usually much more involved than in a Chapter 7.  In addition to the requirement to file a proof of claim, creditors often have grounds to object to confirmation of the payment plan.  Thus, if a creditor is not properly notified, that debt won’t be included in the bankruptcy, and it won’t be discharged at the end.  In that case, the creditor can resume collections after the bankruptcy discharge.

What Happens if the Unlisted Creditor Knew About the Bankruptcy?

If the creditor knew or should have known of the bankruptcy through other means, the debt will be discharged.  Per Section 523(a)(3) of the Bankruptcy Code, a debt is not discharged “unless such creditor had notice or actual knowledge of the case.”  It is not uncommon for a creditor or an attorney to learn of a bankruptcy despite not receiving formal notice.

For instance, our office routinely checks PACER at various stages of the collection process.  We do this out of an abundance of caution to protect our clients.  When we happen to discover a bankruptcy prior to the deadline to file a proof of claim, we then have a duty to file a claim on behalf of our client.  If the creditor learns of the bankruptcy after its deadline to file a proof of claim or objection, then their debt should survive the discharge.  However, it is possible for a debtor to add a previously forgotten creditor by amending a Chapter 7 or filing a post-confirmation modification of a Chapter 13 plan.

The same is true if a debtor has multiple debts with the same creditor and only lists some of them.  The creditor has notice and should file a proof of claim for each debt even if they are not all included in the bankruptcy.  We see this happen fairly often.  We may receive a bankruptcy referral from a client and realize we already have a prior judgment against that debtor for a different loan.  Then after reviewing the bankruptcy schedules, we see the debtor did not include the debt which we previously sued for.  In that instance, we will file a claim for both debts since we have actual knowledge prior to the deadline.

Louisiana Creditor Bankruptcy Attorneys:

We are a Gretna law firm that has served the New Orleans area since 1980.  Our experienced creditor bankruptcy lawyers are well versed at all aspects of creditors’ rights including handling bankruptcy cases on behalf of creditors throughout Louisiana.  We take pride in offering an effective and efficient experience.  Call us today for a free consultation and find out why so many of our clients come back to us.