Unscheduled Debts in Bankruptcy
11 U.S.C. Section 523 provides an exception to discharge for a debt:
if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, 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
if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dis¬chargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request;
In a chapter 7 bankruptcy case, a debtor’s failure to list a debt on the schedules does not prevent it from being discharged, unless (1) a deadline was set for creditors to file proofs of claim and the creditor did not have actual knowledge of the bankruptcy case in time to file a proof of claim by the deadline or (2) the creditor had grounds (for example fraud) to object to the dischargeability of the debt and did not have actual knowledge of the bankruptcy case in time to file the objection by the deadline to do so. Whether the creditor was listed in the schedules or received formal notice of the bankruptcy is not the determining factor. In re Cerrudo, 214 B.R. 500 (Bkcy.N.Dist .Okl. 1997).
The rationale of the Cerrudo holding is that, in a chapter 7 bankruptcy case, no deadline is initially set for creditors to file proofs of claim, and, unless a deadline is later set at the request of the trustee because he has decided to administer some assets, no deadline is ever set. Therefore, in a “no-asset” chapter 7 case, it never becomes too late for a creditor to file a “timely” proof of claim.
The Cerrudo decision holds that a bankruptcy court therefore will not reopen a chapter 7 bankruptcy case for the purpose of amending the schedules to add a debt. Whether the debt is scheduled is not relevant.
The result would be different in a chapter 13 case, because a deadline to file proofs of claim is set at the beginning of every chapter 13 case. In a chapter 13 case, if the creditor does not have actual knowledge of the bankruptcy case in time to file a timely proof of claim, then the debt is excluded from the discharge.
The “actual knowledge of the case” required by Section 523(a)(3)(B) does not require actual receipt of the official bankruptcy notice, and it does not require knowledge of the deadline to file. The key word is “case”. Actual knowledge that the debtor has filed bankruptcy is all that this section requires, as long as the knowledge is received in time for the creditor to have a chance to check the bankruptcy court for deadlines and to file a dischargeability objection within the deadline. In re Walker, 927 F.2d 1138, 1144-45 (10th Cir. 1991).
Creditors who prove that they did not receive timely knowledge of the bankruptcy case under 11 U.S.C. Section 523(a)(3)(B) do not receive an automatic exception to discharge; rather, they receive an opportunity to file their objection to dischargeability after the original deadline. In re Schicke, 290 B.R. 792, 799 (10th Circuit B.A.P. 2003).