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Chapter 7 Bankruptcy Case Reopened for Creditors Left Out of Debtor’s Schedules

geralt [Public domain, CC0 1.0(http://creativecommons.org/publicdomain/zero/1.0/deed.en)], via PixabayA bankruptcy court reopened a Chapter 7 case after granting a discharge on the debtor’s motion, although not for the reason stated by the debtor. In re Sullivan, No. 11-38246-A-7, memorandum (Bankr. E.D. Cal., Feb. 23, 2015). The debtor asked the court to reopen the case in order to amend the schedules to include one or more creditors who had not been included at the beginning of the case. The court held that amending the schedules was not necessary under the circumstances, but it also noted that the creditors may be able to claim an exception to discharge under 11 U.S.C. § 523. The court reopened the case in order to allow the creditors the opportunity to challenge the discharge of their debts.

The debtor filed a Chapter 7 petition on July 26, 2011. The case was determined to be a “no asset” case, so no proofs of claim were requested from the creditors. The trustee was not able to find any nonexempt assets to liquidate and filed a “no distribution” report with the court. No creditor objected to the trustee’s report. The court ordered a discharge and closed the case. Since the case was a “no-asset, no-bar-date-case,” Sullivan, mem. at 1, any dischargeable debt was discharged by the court’s order, whether or not the debt was included in the schedules or the creditor received notice of the case. See 11 U.S.C. § 727(b).

At some point after the discharge and closing of the case, the debtor moved to reopen on the grounds that the schedules did not include one or more creditors and needed to be amended. Since the discharge affected all creditors, not just the ones listed on the schedules, the court held that amending the schedules was not necessary. The court noted that a procedure exists for creditors who did not have the opportunity to object to discharge, but it held that amending the schedules would not address that issue.

If a debt might not be dischargeable on certain grounds, a creditor who did not receive notice of the bankruptcy case in time to file a proof of claim may still object to discharge, even after a case is closed. 11 U.S.C. § 523(a)(3)(B). This applies to debts arising from false statements, false pretenses, or excess consumer goods purchased shortly before filing for bankruptcy, under § 523(a)(2); fraud, embezzlement, or larceny under § 523(a)(4); or “willful or malicious injury by the debtor” under § 523(a)(6).

The creditor must file an adversary proceeding to obtain a ruling on whether the debt is subject to discharge. The court must first determine whether the creditor received adequate notice of the bankruptcy case to give them the opportunity to file a proof of claim. Fed. R. Bankr. P. 4007(c). Then, the court may consider whether the debt is excepted from discharge under §§ 523(a)(2), (4), or (6). The court in Sullivan reopened the case in order to allow the omitted creditors to file adversary proceedings under § 523(a)(3)(B).

Bankruptcy attorney Devin Sawdayi has guided individuals and families in Los Angeles through the Chapter 7 and Chapter 13 bankruptcy processes since 1997. Our practice is dedicated to helping people rebuild their finances and get a fresh start with dignity and respect. To schedule a free and confidential consultation to see how we can help you, contact us today online or at (310) 475-939.

More Blog Posts:

Debtor’s “Tortious Conduct” May Prevent Discharge of Debt in Chapter 7 Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, May 5, 2015

Bankruptcy Court Grants Trustee’s Motion to Deny Discharge in Chapter 7 Case, Los Angeles Bankruptcy Lawyer Blawg, April 8, 2015

Transfer of Real Estate by Debtor More than One Year Before Filing Chapter 7 Bankruptcy Petition Does Not Bar Discharge of Debt, According to California Appellate Court, Los Angeles Bankruptcy Lawyer Blawg, January 9, 2015

Photo credit: geralt [Public domain, CC0 1.0], via Pixabay.