Accidentally omitted creditor in bankruptcy? Despite a debtor’s best efforts, sometimes a creditor does not get listed in the debtor’s bankruptcy. It might be because the debt is old and forgotten. Maybe it’s newer but a debtor just did not know they owed a debt. Sometimes it’s because the debt was sent to a collection agency that was not known. Every once in a while, despite advice to the contrary, a debtor just chooses to not list a debt. It happens. What do you do when you find out that a debt was not listed as such?
First Step – Did You Actually Forget / Omit A Creditor?
If you are contacted by a creditor after filing, one of the very first things you need to do is review your bankruptcy petition and see that BOTH (a) the creditor was listed by name, AND (b) the address for them was sufficient for them to actually receive notice that you filed bankruptcy. Simply, if you did not list a creditor at all or did list them but not at an address they use to receive mail from the USPS, then maybe they no idea that you filed bankruptcy. That may be the reason they are contacting you – they have no idea you filed.
If you did list them by name and at a correct address, then the Bankruptcy Code presumes they received the notice of bankruptcy mailed out by the Bankruptcy Court. Their attempt to collect may be a violation of the Bankruptcy Code, as discussed below.
If you did not list the creditor, then there may be a problem, and you need to take action, as discussed below.
Next Step – Tell Them You Filed Bankruptcy & Keep Records.
It may seem obvious, but if a creditor tries to collect a debt, you should tell the creditor you filed bankruptcy. You should give them at least (a) your bankruptcy case number, and (b) the court in which it was filed (the Western District of Washington at Tacoma for my clients). Then, keep records of your contact with the creditor and that you told them you filed bankruptcy. For example, you might send yourself an email with all the particulars so you have notes in writing made at the time of the contact, and keep copies of any documents/notices you sent to them You need to convey to them that you filed, and, if they continue collection efforts, be able to provide evidence that you told them you filed.
If They Were Properly Listed, What Do You Do?
Sometimes, despite having notice mailed to them by the court at an appropriate address, creditors still contact debtors. Sometimes, they just make a mistake. Normally, just “reminding” them that you filed / received a discharge is enough for them to get the hint and terminate all future collection activities. In that case, we are all human; we make mistakes. They do not owe you money for their “innocent” error that is quickly corrected.
However, if they continue after notification to bother you, then that may amount to a violation of either the Automatic Stay that comes into effect when the case is filed, or the Post-Discharge Injunction which replaces the automatic stay (in most cases) with entry of the Discharge Order. This is why is matters to keep careful records of when/how you notified the creditor of your bankruptcy; if you want to be compensated for any collection effort violation, yo need to be able to prove that you told the creditor that you filed bankruptcy.
A Creditor That Is Properly Listed & Notified of Bankruptcy, But They Are Still Is Trying To Collect On The Debt – Automatic Stay Violation? / Post-Discharge Injunction Violation?
Generally, once you file bankruptcy, creditors are not supposed to attempt to collect a debt from you. If they do, they might owe you money. There are some exceptions that allow creditors to collect on certain types of debts:
Prohibited: Generally, collection of the following types of debts are prohibited – credit cards, medical bills, vehicle payments/balances due, personal loans, utilities, and most common consumer and business debts, and all others not specifically excepted form the automatic stay/post-discharge injunction.
Exceptions: A creditor may be excepted and may lawfully continue to collect on the following debts/scenarios – criminal prosecution, modification of child/spousal support, paternity, dissolution of a marriage (vs. property settlement issues), and others. This can be a complicated issue. Creditors asserting an exception should take care to be correct.
If you are interested in reading the actual protective language and exceptions, here is a link to the Bankruptcy Code for both the Automatic Stay invoked at filing and the Post-Discharge Injunction. But, again, as a general rule, the law prohibits collection on all normal consumer debts.
If They Were Not Properly Listed, What Do You Do?
• In a Chapter 7 case, you have a couple scenarios.
If your Chapter 7 case is still open, and it is a “no asset” case:
A “no asset” case means the Chapter 7 Trustee is not going to take any property from you and not make any payment to creditors. You can formally add them to you list of creditors. This approach means they will receive all future formal notices from the Bankruptcy Court. You would want to do this as early as possible. To the extent that it matters, a formal amendment can show they were “listed” in your Chapter 7. There may also be an attorney fee to make that correction to your bankruptcy petition. There is a $31 court filing fee to correct your list of creditors to add the omitted creditor. There may well be attorney fees for the services provided.
You can personally mail them the same Notice of Filing the court mailed to you and all other listed creditors. If you do this, I’d send one copy via regular mail and another certified mail. Doing so will not cause the Bankruptcy Court to mail them future case action notices. You will have to do that. For example, you will have to or should mail them a copy of your Discharge Order. You may have to prove your sent them notice. So, make sure you can do that. Keep copies of all records in support.
You can ask your attorney to mail them the same Notice of Filing. While there is no formal filing fee with this, there might be an attorney fee to send them notice of filing.
If your Chapter 7 case is an open “asset” case, Time Is Of The Essence!
Timing is off the essence! If the Chapter 7 Trustee ultimately makes a distribution to creditors (which is known as an “asset case”), but the omitted creditor is not notified of your filing in time to file a claim and share in the funds distributed, then their claim is not discharged! DO NOT DELAY in addressing this issue. In this scenario, a debtor should immediately bring to the attention of their attorney. Here is the Bankruptcy Code section for this rule [11 USC § 523(a)(3)].
In this scenario, the creditor should be added as a creditor. Notice of filing should be immediately sent to the creditor. If need be, the debtor might file a claim for the creditor as a placeholder, at a minimum, for that creditor to have a chance to get their share of any distribution. As noted above, there is a $31 court filing fee to add a creditor. There is a $31 court filing fee to correct your list of creditors to add the omitted creditor. There may well be attorney fees for the services provided.
If your Chapter 7 case is closed/completed, and it was a “no asset” case:
Typically, you cannot reopen your case to formally add a creditor. Frankly, most courts say there is no need to do so. Instead, a debtor should tell the creditor they filed and send them a copy of your Discharge Order. As always, keep records and evidence that you notified them in case they engage in collection efforts sometime in the future. The key is to notify them of the filing and discharge AND be able to prove your did that if they later engage in further collection activities.
• In a Chapter 13, Time Is Of The Essence!
As a general rule, debts not listed in a Chapter 13 and that do not otherwise get notice of the bankruptcy are NOT discharged upon completion of the case.
If you discover an omitted creditor after filing, you should tell your attorney immediately. Normally, Notice of Filing should be sent to the creditor ASAP. Hopefully, the creditor receives the Notice in time to file a timely “Proof of Claim” with the court/trustee evidencing how much is owed and why. If they timely receive Notice and chose not to file a claim, then the debt is discharged upon completion of the case (assuming it’s a dischargeable debt).
This can be a complicated issue. Other issues too complex to briefly state here also may exist. The short version is make sure you list all debts with the correspondence address used by the creditor.
Omitted Creditors With NonDischargeable Debts – Issues
Some debts are not dischargeable in bankruptcy (such as past due child support, recent income tax debt, etc). What if you forgot to list one of these debts?
If a Trustee (in a Chapter 13 or “asset case” 7) is making a distribution to creditors, then a debtor wants to have all these debts listed because a trustee will often make a distribution to nondischargeable debts. In short, if a trustee is paying money to creditors, a debtor would want that payment to go first to debts that will still be owed after the bankruptcy is complete. Therefore, to ensure these creditors receive payment, the creditor needs to now of the bankruptcy filing in time to make a claim for payment.
Omitted Secured Creditors In Chapter 13 – Issues
Lastly, in a Chapter 13, a secured creditor (creditor secured by a car, house, etc.) won’t get payment from the Chapter 13 Trustee unless the Trustee has a claim filed by the creditor (or debtor). Using the car creditor example, without a claim filed by that creditor, the funds debtor intended for the car creditor might be distributed to a credit card or medical debt creditor. In that scenario, the car creditor is never paid, and the car lien remains; if the debtor wants to own the car, they still need to pay the creditor to remove the balance due on the car.
All creditors are entitled to notice that you filed bankruptcy. If a creditor is not listed as a creditor and does not know a debtor filed bankruptcy, a debtor should not be surprised that the creditor might later try to collect the debt from them. Forgetting / omitting a creditor can be fixed if it is done quickly. To fix the error / omission, there might be a court filing fee ($31) and an attorney fee. Sometimes, in a “no asset” Chapter 7, its an easy fix just to notify the creditor that you filed and received a discharge of their debt. Sometimes, in a Chapter 13 or an “asset case” Chapter 7, the debtor is not going to receive a discharge of the omitted debt. Bankruptcy is serious business. A debtor needs to pay careful attention and follow all the rules to receive the full extent of the relief available.
As always, if you have any questions, comments or concerns, please let us know!