- This article discusses what happens if you accidentally omit a debt from your bankruptcy paperwork. You may also be interested in our article on what happens if you try to exclude a particular debt or creditor from your bankruptcy by intentionally omitting a debt or creditor from your bankruptcy paperwork.
People sometime accidentally leave a debt or creditor out of their bankruptcy paperwork. The effect of the bankruptcy proceeding on the omitted debt or creditor depends on the type of bankruptcy proceeding that was you filed and, if it was a Chapter 7 bankruptcy, whether it is considered a “no asset case” or an “asset case.”
If you filed one of the reorganization bankruptcies (Chapters 11, 12, or 13), the debt owed to the omitted creditor is not bound by the bankruptcy proceeding. The creditor receives no distributions or payments from the bankruptcy plan of reorganization. More importantly, the debt owed to the creditor is not discharged and survives the bankruptcy (unless the creditor had actual notice or knowledge of the bankruptcy proceeding, which can be difficult to prove).
If you filed a Chapter 7 liquidation bankruptcy, the affect on the debt depends on whether your case is considered an “asset case” or a “no asset case”. In bankruptcy terminology, a “no asset case” means that there are no assets that will be liquidated and administered by the bankruptcy trustee. It could be that all of the assets are exempted from liquidation, or it could be that the non-exempt assets are minimal or not worth the time and expenses of liquidation. The result of a “no asset” case is that there is no distribution of funds to creditors as part of the bankruptcy proceeding. In contrast, an “asset case” means that the bankruptcy trustee has identified assets to liquidate. The liquidation of the assets will create a pool of funds that will be used to pay the claims of creditors in part or in full.
If your Chapter 7 case is an “asset case” and you neglect to list a creditor in your bankruptcy paperwork, then the debt owed to that creditor is not discharged in your bankruptcy and, after the bankruptcy proceeding is over, the creditor is free to collect on that debt, unless the creditor had actual notice or knowledge of the bankruptcy proceeding. The rationale is that, if you had properly listed the creditor in your bankruptcy paperwork, the creditor would have had the opportunity to file a claim in your bankruptcy case and receive a share of the funds created by the liquidated assets; by omitting the creditor, the creditor was deprived of that opportunity for payment and should be able to continue pursuing you for payment.
If your case is a “no asset case”, then the debt is discharged, even if you forgot to list the debt in your bankruptcy paperwork. The reasoning is that, even if you had properly listed the creditor, there would have been no funds available to pay on the creditor’s account. It is sort of a “no harm, no foul” rationale. This result is specific to Oregon and other states in the Ninth Circuit as a result of the Court of Appeals decision in the case of In re Beezley, which is reported at 994 F.2d 1433 (9th Cir. 1993). The result may be different in other states where that decision may not apply.
However, the Court’s ruling in the Beezley case does not mean that people in “no asset” Chapter 7 bankruptcy should be lazy about listing their creditors. Even if a debt owed to an omitted creditor is discharged under the Beezley rule, there can still be problems with the debt and the creditor after the bankruptcy.
If you do not list a creditor in your bankruptcy paperwork, that creditor does not receive official notice of your bankruptcy case from the Bankruptcy Court. As a result, the creditor may not learn of your bankruptcy proceeding and may continue to try to collect on that debt. You may have difficulty convincing a creditor who is not familiar with the Beezley rule that your debt was discharged. Or, the creditor may try to collect on the debt months or years after the bankruptcy is over. Going back, years after the fact, and showing a creditor that a debt has been discharged can be a significant hassle.
For these reasons, it is always better to be sure that all of your creditors are listed in your bankruptcy paperwork that is filed with the Bankruptcy Court. Or, if you realize that a creditor has been missed, it is possible to add creditors to your case, as long as the debt existed as of the time your bankruptcy case was filed. Adding creditors involves filing extra paperwork with the court, along with filing fee, and usually results in additional attorney fees and costs. However, adding omitted creditors to your case is well worth the extra costs and paperwork.