A Bankruptcy Case You Should Know About

March 23, 2012 by  Filed under: Bankruptcy 

A very common problem for consumers who filed bankruptcy is not listing everybody they owe money to. Most of the petitions filed in bankruptcy contain at least one missed creditor.

This is because most filings are the result of a financial crisis and the paperwork is prepared and filed in an emergency – the house is being foreclosed, a creditor has filed a lawsuit and served you. Under emergency circumstances, some things get missed.

Technically, if a creditor is missed, the debt is not discharged against the missed creditor if the creditor is not included in the bankruptcy petition on the grounds of fraud, theft or malicious action on the part of the bankrupt debtor. Another ground is that the missed creditor may have received monies owed through the bankruptcy estate.

If the bankruptcy is still open (the case has not been “closed” by the court; that’s different from the discharge) the missed creditor can be added to the court file by filing an amendment to the bankruptcy petition. There will be additional fees and costs for doing this, and some courts may not take kindly to this.

What happens if the case is closed and discharged, and you are beginning to move on with your life? You are looking through your bills, or a new debt collection company contacts you with an old debt you forgot about, and forgot to include?

What happens next depends on what happened in your bankruptcy. Most consumers end up filing a “Chapter 7” bankruptcy. Most of those, in turn, are considered “no asset” cases. This means that there are not any non-exempt assets for the trustee to liquidate and sell to pay off creditors. The net effect is that the creditors will get nothing after the bankruptcy is closed.

In that situation, there is a 9th Circuit (western United States) case which protects the debtor. The case is called In Re Beezley.

In the Beezley case, Beezley, the debtor filed bankruptcy in 1987. It was a “no asset” case, and he was discharged later in 1987. During the bankruptcy, Beezley did not report or include a debt owed to Cal Land.

Three years later, Cal Land contacted Beezley, and Beezley moved the court to reopen his bankruptcy to include the claim against Cal Land. This motion was denied by the court. Then Beezley did something unusual for a party representing himself – he filed an appeal.

The 9th Circuit considered Beezley’s plight and decided that since it was a “no asset” case, there was no money to distribute to the creditors, including missed creditors. As such, even if the bankruptcy was opened again and Cal Land was added to the creditor list, it would not have made any difference. Since there was no money to distribute, there was no need to open the bankruptcy again.

The result of this is that if a creditor is missed in a Chapter 7 no asset case, it is literally a matter of “no harm, no foul” and the case is discharged against the missed creditors as well.

This is a useful thing to know if confronted by a creditor that was missed in the bankruptcy.

Craig Andrews, JD is a writer and researcher. He writes on how the law impacts everyday life, with emphasis on elder law issues, consumer credit issues, identity theft and bankruptcy.

His website is http://www.bklifeboat.com

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