I Didn’t List All Of My Creditors In My Chapter 7 Bankruptcy Filing. What Will Happen to My Case?

There is a Federal Requirement to List All Debts and Claims When Filing Bankruptcy

Many people unnecessarily postpone filing for Chapter 7 bankruptcy out of fear that they cannot find a name and address for every single creditor to whom money is owed.

Similarly, other folks who have already filed a Chapter 7 case unnecessarily worry for years afterwards that a creditor may have been overlooked, and that the creditor is not clearly identified in the bankruptcy documents. They incorrectly believe that this omitted creditor can still sue and collect on the debt post-Chapter 7.

Couple listing their creditors for their bankruptcy filing

Is It Really A Big Problem If A Creditor Is Not Written Down In The Bankruptcy Paperwork, If It Is An Innocent Error?

No, not really. With rare exceptions, most people filing Chapter 7 should not worry that an unscheduled debt might come back to haunt them years after an otherwise successful Chapter 7 filing.

Let’s start with the basics. The basic rule is that all creditors you know about and who can be located with reasonable effort must be reported in your bankruptcy paperwork. You must report a name, an address, and an estimate of the amount owed. But there is a safety valve in the Bankruptcy Code for the honest Chapter 7 bankruptcy debtor who innocently omits a creditor’s name and address from the bankruptcy petition paperwork filed with the court.

An Ounce of Prevention: Write Down All Debts and Claims, Even the Disputed and the Old

Each creditor’s name and mailing address is required to be written down in a specific place, called a “schedule”. Bankruptcy schedules include Schedule D (secured debts like car loans, HOA debts and mortgages), Schedule E (“priority” debts that include recent income taxes or business taxes and child support obligations), and Schedule F (unsecured debts such as credit cards, repossessions, lawsuit claims and medical bills).

In addition, lease obligations must be reported on Schedule G, and the name and address of any co-signers must be reported on Schedule H.

In bankruptcy, debts are known as “claims”. All possible “claims” should be listed, even if you dispute the debt or claim, or don’t think you should be held responsible for the debt or claim. Some debts are so old that they are beyond the statute of limitations to file a lawsuit to collect the debt, but these are still considered “claims” under the definition of “claims” in bankruptcy law. Even these old debts should be reported in the appropriate Schedule, usually Schedule F, by listing the name and address of the creditor or claimholder. So yes, you should provide a last-known name and address from that old veterinary bill from 1998, even if you haven’t heard anything about it for years.

People who you think might sue you or could possibly sue you should also be listed in the schedules, even if you disagree that they could win in court. For example, if you were involved in a car accident, and either you didn’t have insurance, or worry that you had an insufficient amount of insurance to cover injuries suffered by the person you ran into, you should list the other driver as a “claim”, even if you have not heard anything about the accident for a while.

The Omitted Claim or Debt in Chapter 7

What happens if you failed to include a claim or debt in your Chapter 7 case along with the creditor’s mailing address?

There are several possible results.

Innocent Omission of Ordinary Debts in a Common Chapter 7 Bankruptcy

If the debt is quite ordinary, and is a “general unsecured” debt of the type usually reported on Schedule F, then it will probably be regarded as discharged anyway, even if not written down in Schedule F in your bankruptcy filing. This “discharged anyway” treatment usually includes run-of-the-mill common debts like an ordinary medical bill or unsecured credit card like a Visa, MasterCard or Discover, which are considered unsecured debt.

This “discharged anyway” result is explained in a relatively obscure 9th Circuit Appellate Court case In re Beezley, 994 F.2d 1433 (9th Cir. C.A. 1993). However, there is a limitation on the rule set forth in Beezley. It only applies to discharge unreported debts in what are known as “no asset, no bar date” cases, which means that the “discharged anyway” treatment is applicable only when there are not any non-exempt assets to liquidate and distribute to unsecured creditors in the bankruptcy case.

Exact statistics are hard to come by, but “no asset, no bar date” cases probably make up well over 95% of Chapter 7 bankruptcy cases. It can be said that over 95% of well-intentioned Chapter 7 debtors who fail to write down a claim will still discharge that unreported run-of-the-mill ordinary type of debt in their bankruptcy case.

The “discharged anyway” 9th Circuit protections in Beezley are no excuse for carelessness, however. You really should provide a complete list of creditors and their addresses to your bankruptcy lawyer. Get a credit report if you need help in remembering your creditors’ names and addresses.

Unlisted Priority and Non-dischargeable Debts

Some debts are not ordinary and will not be discharged. If the debt was of a special classification of debt such as recent income taxes, child support, student or educational loans, criminal fines, alimony, or criminal restitution, then the debt would not be discharged even if it had been listed in the bankruptcy schedules. Most “Priority debts” and “non-dischargeable debts” fall into these special classifications of debts that will not be discharged, reported in the schedules or not. Thus failure to list in the schedules a debt falling into one of these unique classifications of debt has no additional negative impact. It would not have been discharged even if it had been listed in the schedules then likewise it will not be discharged when not listed.

Failure to List Fraudulent or Intentional Tort Debts

A debt or claim that is related to fraudulent or maliciously intentional conduct differs from priority and non-dischargeable debts that are not dischargeable in bankruptcy. Fraudulent or intentional tort debts are subject to a discharge challenge court trial called an adversary proceeding that will determine whether or not the debt is dischargeable in bankruptcy.

Fraudulent or intentional tort debts are described in the bankruptcy law in 11 USC 523(a) (2) fraud, (4) fraud or defalcation while acting in a fiduciary capacity, or (6) willful and malicious injury to another entity or to the property of another entity. Defalcation is another term for an amount of funds that were misappropriated by a person trusted with its charge; also, the act of misappropriation, or an instance thereof.

Willful and malicious injury under 523(a) (6) might include an assault upon another person, like damages from a fist fight or domestic violence. 523(a) (4) fiduciary defalcation might include stealing from your dead mother’s estate and spending portions of an inheritance that should be divided equally between your surviving siblings.

The injured party who holds a claim that relates to actions of the debtor as described in 11 USC 523(a) (2), (4) or (6) has the right to contest the discharge of that particular debt when the debtor files for bankruptcy. However, if that creditor is not listed in the bankruptcy case schedules so that the creditor does not know about the bankruptcy case, then the right to collect the claim survives the bankruptcy discharge.

Whether you have defalcation on your conscience or not, there is a big problem with failing to list fraudulent or intentional tort debts.

The Case of the Very Determined Collector

A recent 9th Circuit case is a good example: In re Cery Bradley Perle, Cery Bradley Perle, Appellant, v. Alfonso Fiero, Appellee, 9th Circuit Court of Appeals, No. 11-60000, August 2, 2013.

In 2006, Fiero filed a motion to re-open Perle’s old Chapter 7 bankruptcy in which Perle had received a discharge in 2002. Fiero wanted to ask the bankruptcy judge to rule that a 1998 $350,000 securities arbitration judgment against Perle should not be discharged because Fiero believed he was defrauded by Perle in the mid-1990s. Fiero was likely proceeding under 523(a) (2) or (4). The big problem for Perle is that Perle did not clearly identify Fiero by listing his name and address in his 2001 bankruptcy petition. This meant that Fiero did not receive a notice of Perle’s bankruptcy filing.

The court granted Fiero’s motion to reopen Perle’s bankruptcy case. The bankruptcy trial court found that the $350,000 judgment against Perle arose from fraudulent conduct, and would not be discharged in the 2001 Chapter 7 bankruptcy filing.

Perle appealed twice, and lost both times.

How did Perle mess up? If Perle had provided a name and address for Fiero in Perle’s 2001 bankruptcy paperwork, and if Fiero missed the 60 day paperwork deadline to challenge the discharge back in 2001 for any reason, then Perle would have escaped from Fiero, free and clear, forever.

Fiero could still be chasing Perle around even today, trying to legally collect the $350,000 non-dischargeable judgment for fraud.

My Take on the Fiero vs. Perle Case

While I am only speculating, I think that Perle lost his money in the 2001 9/11 related recession, but then made good again by 2006 as many wheeler/dealer types did well in the late 90s with tech stocks, lost some or all of their gains, then got into real estate in the early 2000s and remade their fortunes. When Fiero found out in 2006 that Perle had made good again so quickly, Fiero probably became angry. I doubt that Fiero was completely unaware that Perle filed for bankruptcy in 2001. Instead, I think that Perle “out-foxed himself” by failing to list Fiero on his 2001 bankruptcy schedules, and that Perle still regrets that mistake.

Knowingly and Intentionally Omitted Debts

Perle could have faced even bigger problems than the disallowance of the discharge of the $350,000 Fiero fraud debt. If the Judge had found that Perle had knowingly and intentionally not listed Fiero in the schedules for some improper purpose, Perle might have faced an even bigger problem. Perle might have lost his entire discharge for every other debt included in his filing.

Let’s consider the following example. Over the past two years, you paid a debt down to $20,000 from an initial amount of $32,000 that you owed to your grandmother. You file for bankruptcy protection, and you do not list your grandmother as an unsecured creditor on Schedule F because you read on the Internet that the bankruptcy court Chapter 7 Trustee might make your grandmother return some portion of the $500 monthly payments you had been making to her over the past 24 months if the Trustee learned of the payments. You try to hide the debt you owe to your grandmother by making no mention of the remaining debt owed her or the repayments you made in your schedules and statement of financial affairs.

A Note about Repayments to Friends and Relatives

Don’t freak out about pre-bankruptcy repayments to friends and relatives. There really are some excuses, strategies, and defenses for these repayments that might change what appears to be a “big repayment problem” into “no problem”.

A better-than-average bankruptcy lawyer will recommend to you that while you should try to avoid repayment of friends and family members on the eve of bankruptcy, you should recognize that just because you recently repaid a friend or relative, that repayment is usually not a reason, by itself, to postpone or avoid your bankruptcy filing.

This Is Really Easy: Get a Credit Report

We send many prospective clients for an easy to obtain credit report from AnnualCreditReport.com. We also recommend that existing clients check their credit report every year, and dispute in writing debts that they believe should not appear on their credit report.

If you wrote down a name and address for all creditors you could remember, plus secured a credit report to look for additional creditors and their addresses, you have done everything you could to secure the names and addresses for each and every claimholder who should be listed in your bankruptcy papers. You did well!

What to Do With Post-Bankruptcy Collection Notices

When your bankruptcy filing is complete, make copies of the discharge notice you receive in the mail from the bankruptcy court. If at some later time, either a creditor who was innocently omitted from your filing, or if any discharged creditor for that matter, starts to collect, you should then invoke the protections under the 9th Circuit Court of Appeals Beezley decision described above. Mail the creditor a copy of the bankruptcy discharge notice along with a polite written request to stop all collection activities and to repair any credit report inaccuracies that occurred from the improper collection attempt.

Don’t Make the Same Mistake That Perle Made

When you file your case with our firm, we will ask you to give a complete accounting of all of your debts and creditor names. If you’re not sure if a creditor and debt should be listed, ask us. We’re here to help you complete your case successfully, and get back on your feet and on your way towards a brighter financial future. Don’t wait; contact our office today for a free, no obligation bankruptcy consultation.