The debtor in this case signed a promissory note for $25,000 for ductwork for his house, then filed a chapter 7 bankruptcy a year later without listing the debt. He and his wife received their discharge and the case was closed.

Two and a half years later, they were sued by the duct company for the debt, and the plaintiff indicated in the lawsuit that they knew about the bankruptcy, but since there were not listed in the bankruptcy, they were not discharged.

The debtors moved to reopen the chapter 7 case, have the Bankruptcy Court determine that the debt was discharged, and seek sanctions and attorney fees. Following a hearing at which only the debtors presented witnesses, U.S. Bankruptcy Judge Jeff Bohm agreed with them.

The Bankruptcy Court said in its Memorandum Opinion that unscheduled debts could be excepted from discharge in a no-asset chapter 7, but only under certain circumstances:

Section 523(a)(3) excepts unscheduled debts from discharge under certain circumstances. The Fifth Circuit analyzes § 523(a)(3) exceptions using three factors, originally described in Robinson v. Mann, 339 F.2d 547 (5th Cir. 1964): (1) the reasons the debtor failed to list the debt; (2) the amount of administrative disruption to the bankruptcy process; and (3) the prejudice suffered by all of the creditors. E.g., Faden v. Ins. Co. of N. Am. (In re Faden), 96 F.3d 792, 796 (5th Cir. 1996) (citing Stone v. Caplan (In re Stone), 10 F.3d 285, 290 (5th Cir. 1994)).

You are required to list all of your debts when you file bankruptcy. But if you unintentionally fail to list one, and it is a no asset chapter 7 case, I think this case was correctly decided and you should be able to rely on this decision if this happens to you.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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