If you forgot a creditor, do you still owe it when your case is over? In most Chapter 7 cases, no you don’t.
Of course the analysis is different for the different chapters of bankruptcy. In Chapter 7 bankruptcy if you inadvertently leave a creditor off your petition, whether you have to pay them back or not depends on two things: 1. Did you rip this creditor off or cheat them out of their money or intentionally injure their person or property? OR 2. Did the Trustee assigned to your case set a deadline for creditors to submit claims for money.
Pretty much, if a creditor is left off your chapter 7 bankruptcy and if you didn’t cheat them out of their money in some way or intentionally harm them, then in most cases your debt will be discharged even though it was left out of the petition.
This is true only when your bankruptcy trustee did NOT set a deadline for creditors to make claims for money. The debt is automatically discharged. You don’t even have to reopen your case and add them to it, you just send them a copy of your discharge and remind them that you owed them before you filed your bankruptcy. See Beezley v. California Land Title Co, (In re Beezley), 994 F.2d 1433, 1434 (9th Cir. 1993) (per curiam).
A bankruptcy trustee will only set that deadline if you have money or property that he can take away from you, sell, and pay the proceeds to your creditors. For the vast majority of you, this will never happen.
To make the issue just a little clearer than mud, here’s a copy of the statute, 11 USC Section 523(a)(3):
[A debt is not discharged in bankruptcy if it is]
(3) neither listed nor scheduled . . . with the name . . . of the creditor to whom such debt is owed, in time to permit—
(A) . . . timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; OR
(B) [if you did commit fraud, embezzlement or intentional injuries or damage] . . . . , timely filing of a proof of claim AND timely request for a determination of dischargeability of such debt . . . unless such creditor had notice or actual knowledge of the case in time for such timely filing and request;
11 USC Section 523(a)(3)(A)
ON THE LIGHTER SIDE: A bankruptcy trustee only sets a deadline for creditors to submit proofs of claim when he finds that you property that he can take away from you, sell, and pay your creditors. This deadline is called a claims bar date. So, for instance, you have a house with $50,000 in equity and you also have a cabin in the woods worth $10,000. More typical is your home has $50,000 in equity and when that happens you can only protect about $3000 in cars. If your car is worth $10,000 then your trustee is going to sell it and pay you a $3000 check. You won’t be able to keep both the house and the car.
Your bankruptcy trustee will sell your car or cabin and split the proceeds among your creditors and that is true even if it would only pay your creditors 1% of what you owe them. Of course, if your cabin really is only worth $10,000 then he might not find a buyer. What if he doesn’t? Your trustee will still have already set the claims bar date anyway because he sets that long before he finds out that no one wants to buy your cabin afterall.
Your bankruptcy trustee might not set the claims bar date until months after your case has already discharged. Once the trustee notifies the court that there may be assets, a claims bar date is set. That date is usually 90 days after the bankruptcy trustee notifies the court. At that point, you should definitely make sure that every creditor listed in your case is listed with the correct address. Double check all of your records to make sure none were left out. If you listed a creditor at the wrong address, then they won’t know about the bankruptcy and won’t get a share. So, Google all their corporate addresses. Go to AnnualCreditReport.com or FreeCreditReport.com and to help make sure no one is missing.
If your creditor was not notified or if you used the wrong address, or if you found the right address but notified them too late to submit a proof of claim, then that creditor will not be discharged and you will owe them in full. That is the start of a bad day.
Unless you can prove that the creditor had notice or actual knowledge. So, for example, you had a business partnership and you listed both of your partners as creditors. If however one of them moved but then he finds out that you filed from the other partner who didn’t move . . . then you just have to be able to prove that he knew in spite of the move.
It could be as simple as getting the one to testify and say that he told the other. Good luck with that one, they’ll probably collude to testify that he didn’t and then split what you owe the guy who moved. Or if the move-away partner telephoned and left a snarky or nasty message about it. You’ve got him. If you scanned the notice of commencement of case and emailed it to him, then you’d be able to prove that you’d done that.
Best of course, if you realize that a creditor has been left out, and if you know that the bankruptcy trustee is setting the claims bar date, double check everything and amend your bankruptcy as necessary. That’s going to cost some money, but it’s better than paying them back.
11 USC Section 523(a)(3)(B)
THE DARK SIDE: Basically the gist of this is: If you cheated a creditor either by fraud, theft, embezzlement, or intentional injury to person or property, then leaving them off your bankruptcy is not going to protect you from them. You cannot beat these kinds of creditors by adding them late by amendment with only a week or two to go to the end of your case. If a creditor would have a claim for this kind of debt, they must ask a judge to exclude them from your discharge. But they must make that request in writing and file it with the court during the 60 days after your first hearing date.
Your first hearing date is called your first meeting of creditors. The request that a creditor must file against you is a special type of lawsuit called an Adversary Proceeding. If they were notified properly AND don’t file this lawsuit, then they have already lost. It’s like a mini-Statute of Limitations, but it only works if they in fact knew about it. If the creditor knew that you filed, and does not sue, then they lose by Default.
But subsection (B) of the statute has that little word, “and” in the text, what does that do? “filing of a proof of claim and timely request for a determination of dischargeability”. Does that mean that if you cheated a creditor out of money that the bankruptcy trustee must still file a notice to set a deadline to file proofs of claim in order for their claim to survive the bankruptcy discharge order?
Basically it works this way: Above on the lighter side, where there was NO fraud, NO embezzlement, and NO intentional harm, the debt was discharged with nothing more happening. In the dark side, where you DID cheat the creditor or you DID intentionally harm the creditor, the debt is NOT discharged. However, the creditor has the same requirement to file an adversary proceeding to prove it.
When do they have to file that lawsuit though? Since they didn’t get notice, then whenever they file it, it will be timely. So, my recommendation is to reopen the case, add the creditor, and ask the court to determine a last date for that creditor to file their lawsuit against you.
Most creditors even when they have pretty good cases will still never bother to sue you in the bankruptcy court. Especially when we’re talking about institutional creditors like the big banks. A small creditor like The Piano Credit Company will sue you for fraud even when anyone can see that you never did it. Your best friend who lent you some money or your former business partner, those are the ones that sue you.
In chapter 13 bankruptcy, every case is an asset case and every case has a deadline set automatically for creditors to submit proofs of claim.
So, it is very important to make sure that your addresses are all correct, and that you have listed every one you might owe money or property. You can download each of your three credit reports for free at AnnualCreditReport.com, and for a small fee you can download them at FreeCreditReport.com. Keep in mind however that not all of your creditors will have reported to the credit reporting agencies and sometimes they are temporarily off of the reports.
If you are in bad financial circumstances, do not throw anything away. Keep every invoice or billing statement that you ever get. Keep every collection letter and every letter from an attorney. If ever have to come and see me, you may wish you still had them someday. Do not throw them away.