Unscheduled Debts Are Discharged in No-Asset Chapter 7 Cases, So Long as No Fraudulent Intent, Says Houston Bankruptcy Judge

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

In this case a debtor contracted with a company for custom duct work, and signed a promissory note to pay them almost $25,000. A year later they filed chapter 7 bankruptcy in Houston, but did not list the debt to the duct company. They had a so-called "no-asset" chapter 7, where there were no assets that were taken from them and sold by a chapter 7 trustee to pay their creditors; everything that they owned was claimed as exempt, so they could keep it. They received their discharge of debts, and their case was closed.

Anyway, 2 1/2 years later, the ductwork company sued them for the debt in Texas state court, and said that since they were not listed as a creditor in the bankruptcy, their debt was not discharged. The debtors brought a "motion to reopen" the bankruptcy, to have the Bankruptcy Court determine that the debt to the ductwork company was discharged, and to seek damages and attorney fees for violating the discharge injunction.

At the hearing on the motion to reopen, the ductwork company lawyer didn't cross examine the debtors, who testified credibly that they meant to list the duct company as a creditor but for some reason it did not get done. So the judge gave the duct company lawyer a continuance to call witnesses to refute the debtor's testimony; he didn't do it, but instead announced that they would dismiss the lawsuit, so there was no reason to reopen the bankruptcy.

The Bankruptcy Court ruled for the debtors, finding in a Memorandum Opinion that they did not intend to leave the ductwork company off the bankruptcy, that the debt was discharged, that the case would be reopened, and that the debtors could seek damages and attorney's fees for the lawsuit that was brought in violation of the discharge injunction. So, the lesson here is to make sure that you list all of your creditors in your chapter 7 case. But if it is a no-asset case, and you did not intentionally leave the creditor off, then the debt is probably discharged anyway.