A general rule in bankruptcy is that you are required to disclose all creditors on your bankruptcy schedules as a matter of due process. All creditors – whether their debts are dischargeable or non-dischargeable, whether you intend to reaffirm their debts or not – have certain rights and responsibilities when the bankruptcy case is filed and the stay goes into effect, and therefore, they are entitled to notice so they can act appropriately.
11 USC 523(a)(3) generally makes debts non-dischargeable if they are not disclosed on your bankruptcy schedules, however, only under certain conditions. Specifically, each one is predicated on the creditors ability to timely file a proof of claim.
Except… creditors of debtors in Chapter 7 Bankrputcy don’t file claims unless the trustee seizes an asset or recovers a preference for the benefit of creditors. So unless there is an asset to liquidate in Chapter 7 or if the debtor files Chapter 13, there are no proofs of claim to file.
Combine this with Judge Kelley’s decision in Guseck, which holds that a case need not be reopened to add a garden-variety creditor that was inadvertantly ommitted from the debtor’s schedules.
The end result? A debtor who forgets to list a debt in a no-asset Chapter 7 generally suffers no penalty if they forget a creditor. They simply need to provide notice of the bankruptcy to the creditor after-the-fact, and – at worst – pay a filing fee to amend their schedules. The debt is still discharged.
A debtor who forgets to list a debt in an asset Chapter 7 or in a Chapter 13 case will be stuck with a non-dischargeable debt if the error is not caught before the deadline for creditors to file claims.
It’s easy to know which chapter you’re filing under, but not always easy to know if a Chapter 7 case will be an asset case or a no-asset case.
The lesson? Read your schedules of creditors (Schedules D-H) very carefully before your bankruptcy case is filed. A credit report does not always reveal all debts. Make sure that no debts are missing from the schedules.