What happens to a creditor’s claim not included in a discharged Chapter 7 Bankruptcy filing?

Section 524 of the bankruptcy code is often referred to as the embodiment of the code’s fresh start concept.  This is because it operates as a post-discharge injunction against the collection of debts discharged in bankruptcy.  This protection afforded by the discharge has been referred to by the Supreme Court as one of the “critical features of every bankruptcy proceeding.”  Cent. Va. Cmty. College v. Katz, 126 S. Ct. 990, 996 (2006).  When dealing with a chapter 7 case the provisions of the § 524 discharge affects all creditors by voiding the debtor’s past liability for debts that are subject to the discharge, and permanently enjoins creditors from pursuing the debtors.  Once a debt has been discharged a judgment against a debtor imposing liability for a discharged debt is void.

However, when a debtor fails to schedule a debt there is an exception to the discharge of that debt Under 11 U.S.C. § 523(a)(3).  The primary purpose behind the discharge exception is to provide fairness to the creditors who, through no fault of their own, were prejudiced by not having the opportunity to protect their rights and assert their interests.  The statute recognizes that creditors in that position could likely be prejudiced by being denied either a meaningful participation in the distribution of assets, if any exist, or the ability to challenge the dischargeability of their claim for any one of the reasons laid out in §523.

Section 523(a)(3) reflects the notion that debtors are expected to exercise reasonable care and diligence in assembling and filing with the bankruptcy court accurate information concerning their creditors.  When filing bankruptcy the debtor has an absolute duty to identify all persons or entities which may hold or assert claims against the estate.  The purpose of this obligation is to provide adequate notice to creditors of the potential effect that the bankruptcy might have on their rights.  In re Bowen, 89 B.R. 800, 805 (Bankr. D. Minn. 1988).

Special problems can arise in regards to the discharge of unscheduled debts in a chapter 7 no-asset case.  Some courts have held that § 523(a)(3)(A) does not apply because no deadline date is set for filing proof of claims.  As result, the creditor is not seen as being deprived of anything by the inability to file a proof of claim because one does not need to be filed.  The courts are split as to if debtors should be allowed to reopen a chapter 7 no-asset case in order to afford relief to debtors.  Some courts have held that reopening the case would afford no relief as the reopening would likely be meaningless, while other courts have found that a reopening and amendment of the schedules ensures proper notice to creditors if dividends would become possible.

In sum, if a debtor claims that his debt to you has been discharged by bankruptcy but you never received notice, it is recommended that you consult with a Florida creditor’s rights lawyer to examine your rights in law and equity.  The right of a creditor in a bankruptcy case to file a proof of claim and participate in any distribution or to file a complaint to determine whether a debt is dischargeable is one that is protected under the bankruptcy code.

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