Do ALL creditors have to be notified of no asset ch 7 filing?

[zipideedooda]

What is the name of your state? OH

Is it true that in a no asset ch 7 BK not every creditor has to be notified? My lawyer told me not to be concerned if I forgot to list a creditor ( I didn't) because in a no asset ch7 all debts, that are dischargable, are discharged.
Somehow this doesn't ring true.

 

[Rainaraines]

Your attorney is correct. You don't have to notify any of your unsecured creditors in a Ch. 7 bk. Secured, yes. And all creditors in a Ch. 13.

 

[zipideedooda]

Rainaraines, thank you for taking the time to answer my question.

 

[Ladynred]

That's not true. While its true that missing a creditor isn't a catastrophe and in a no-asset case the debt would probably be discharged anyway, your creditors DO need to be notified. That's why you fill out a creditor matrix. They are notified of the bankruptcy so that they have the opportunity to object to your debt to them being discharged. Most of the time they won't, but if a creditor feels you've committed fraud -like running up your account just before filing, then they have the right to object and be heard in court.

 

[racer72]

A quick review of the rainman's posts reveals a lot of misinformation.

 

[AttorneyOney]

Check out section 523(a)(3) of the bankruptcy code (http://www4.law.cornell.edu/uscode/11/523.html), which deals with unscheduled creditors. Basically, in a no-asset case, most unscheduled debts that are otherwise discharageable are discharged even though the creditor never got notice of the case. This is because they would have been told not to file a proof of claim, and the fact that they didn't know to file one is therefore irrelevant.

The exceptions are for debts that arise from (2) fraud, (4) defalcation, (6) willful and malicious injury, and [possibly] (15) divorce settlements. Those debts are discharged unless the creditor files (and wins) an adversary proceeding during the case to get them excluded from the discharge. If the creditor doesn't get notice in time to object, they're not discharged.

Your attorney may have just been expressing this analysis in the shorthand that some lawyers have for clients who aren't paying them hourly fees.

 

[zipideedooda]

None of the exceptions apply here so I guess that's what my attorney was referring to. Thanks to everyone for the information.

 

[JETX]

The issue of 'creditor omitted' in a no asset bankruptcy still being discharged is NOT as cut and dried as suggested by some in this thread. The courts have somewhat contradictory rulings on this issue......
I offer the following from one of my previous posts on this subject:

"Here are some cases of interest:
1) "In the present case, Debtor seeks to reopen and to amend the schedules to list five creditors in order to subject their debts to discharge. For the reasons just stated, reopening this case will not accord the Debtor the relief she seeks. As prepetition debts of the Debtor in this no-asset Chapter 7 case, the debts were discharged when the debtor received her discharge on August 5, 2002, unless the debt is one which is nondischargeable under any of the
subparagraphs of 5 523(a) other than 5 523(a)(3) (A). The limited information presented regarding the five unlisted creditors suggests that their debts are not ones which are nondischargeable.'
Therefore, it appears that the five debts have been discharged even though they were not scheduled by Debtor. In any event, reopening the case and scheduling the five debts at this time would have no effect on the status of the debts. Because reopening the case to amend the schedules would be a futile act which would not affect the
rights or liabilities of any party in interest, the motion to reopen should be denied."
http://www.ncmb.uscourts.gov/opinions/docs/serge.PDF

2) "The Ninth Circuit decided it makes no difference that such debts are not listed in the schedules or that no notice was given to the unlisted creditors because in no-asset Chapter 7 cases, proofs of claim are not filed with the court and no assets are available for liquidation. Because, according to the Ninth Circuit, nothing will be paid to creditors there is no harm to unlisted creditors in subjecting their claims to the discharge just as if they had been listed. Therefore, the Bankruptcy Court held that the creditor’s claim was discharged even though it had not been listed and, accordingly, the sums garnished from debtor’s wages after the discharge had to be returned."
http://www.idahocul.org/Leagueinfo/.../2001/sep01.htm

3) "Many courts would hold that debts will be discharged in a no-asset Chapter 7 case even if they are not listed. There are two key phrases in that answer that require more explanation.

* Many courts. The bankruptcy code is not at all clear on this subject. While the trend appears to be that the unlisted debts in no-asset cases are discharged without any further action, the code has been interpreted in differently in many courts. Some courts would allow you to reopen the case to add a debt. Others would say that the debt cannot be added and therefore is not discharged.
* No-asset. In many Chapter 7 cases, there are no non-exempt assets which the Trustee may sell for the benefit of the creditors. These are called "no-asset" cases.

Courts say that unlisted debt is discharged in no-asset cases have carefully read Section 523(a)(3)(A). This section excepts debt from discharge if they were not listed in time for the creditor to file a timely proof of claim. The proof of claim is used by the Trustee to determine the proportion to divide the debtor's assets between the creditors. In a no-asset case, there will be nothing to divide and no reason to file a proof of claim. As a result, in no-asset cases the bankruptcy notice instructs creditors that they are not to file a proof of claim. Courts taking this position reason that since it will never be too late to file a proof of claim, a debt is not excepted from discharge because it has not been listed. Cases in which the courts reach this conclusion include: In re Madaj, 149 F.3d 467 (6th Cir. 1998); Judd v. Wolfe, 78 F.3d 110 (3rd Cir. 1996); Stone v. Caplan, 10 F.3d 285, 289, n. 13 (5th Cir.1994); and In re Beezley, 994 F.2d 1433 (9th Cir.1993). [8-99]"
http://www.doney.net/faq_creditors.htm

As you can see, the key to whether a chapter 7 filing discharges unlisted debt or not very likely hinges on whether it is a no-asset finding."
Original thread: https://forum.freeadvice.com/showthread.php?t=174669