What Happens if I Forget to List a Debt or Creditor in My California Bankruptcy?

Leaving a Debt Out of California Bankruptcy FilingAs I discussed in my last post “Can I Leave My House or My Car Out of My Bankruptcy?” the Bankruptcy Code requires that a debtor truthfully disclose all of his debts, assets, income, and expenses. One cannot choose to leave a given debt or asset “out” of her bankruptcy case. Not only is the bankruptcy debtor required to sign his bankruptcy petition, affirming under penalty of perjury that it truthfully and accurately discloses all assets, debts, creditors, income and expenses, but the debtor is again required to testify under oath at his section 341 Meeting of Creditors that he has truthfully listed all of these items in his bankruptcy petition.

But what happens if a debtor unintentionally omits a particular debt or creditor from her bankruptcy filing? Although our San Francisco Bay Area bankruptcy attorneys take great care to help our clients list every debt—we purchase an up-to-date, comprehensive credit report for every client, for example—there are valid reasons why a particular creditor may be unknown to the debtor, and may not even appear on his credit report. Some claims against the debtor may be dubious or disputed. Some debts may have been bought and sold so many times by third party bill collection agencies that the most recent collector hasn’t even yet identified itself to the three credit bureaus.

There are a number of valid reasons why a particular creditor or debt may be unknown or uncertain to the debtor when we prepare and file his bankruptcy petition. But what happens to this debt, if it is unintentionally omitted from the bankruptcy filing? If the case is still open while the debtor learns the identity of the creditor claiming such an inadvertently omitted debt is owed, we can amend the bankruptcy petition to include that debt and the creditor’s identity. The Bankruptcy Court does impose a small filing fee of $30 for amending the bankruptcy petition to include such a debt, but amending is far less costly than later arguing with the creditor over whether the debt was discharged after the bankruptcy case has closed.

What about an unintentionally omitted debt that is never included in the bankruptcy case? If the debt was not listed, then that creditor most likely never received any notice of the debtor’s bankruptcy filing. What to do when that omitted creditor later attempts to collect the unlisted debt? In some jurisdictions, this situation may necessitate a costly reopening of the bankruptcy case in order to schedule the unlisted debt. The bankruptcy attorney will have to file a motion to reopen the case, will likely bill the client for this additional work, and the Bankruptcy Court may or may not grant permission to reopen an list the debt.

Fortunately, in California, because we practice bankruptcy law in the Ninth Circuit, we may rely on a case called In Re Beezley, 994 F.2d 1433 (9th Cir. 1993). That case holds that with respect to Chapter 7 cases, as long as the omission of a creditor was unintentional, and as long as the bankruptcy case meets certain criteria, then the unlisted debt is discharged regardless of whether the creditor ever received notice of the bankruptcy filing or not. First, the bankruptcy case must have been a Chapter 7 “no asset” case (meaning there were no assets over and above what the debtor was allowed to exempt and keep). Additionally, there must have been no basis for the creditor of the unlisted debt to have challenged the dischargeability of the debt under Bankruptcy Code section 523(a)—such as fraud by the debtor. As long as these criteria are met, the debtor is not required to reopen her bankruptcy case in order to list an omitted debt. The debt was discharged under the “blanket” Chapter 7 discharge, and the creditor may not collect that discharged debt.

Note that I am only talking about debts that are unintentionally omitted from a bankruptcy filing. If a particular debt is intentionally omitted from one’s bankruptcy petition, such omission can not only operate to make that debt nondischargeable (meaning the debtor will still owe that debt), but worse, such an intentional omission could be treated as a bankruptcy crime and criminally prosecuted.

Consumer bankruptcy is complex. Which is why it is critical that if you are considering filing bankruptcy in the Bay Area, that you get good advice from experienced bankruptcy attorneys. Call us today to schedule a free initial consultation.

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