Omitted Creditors in Chapter 7 Bankruptcy: Motion to Reopen is Not Necessary

Question:  What if a debt was accidentally omitted from the chapter 7 schedules, and it’s not discovered until after the case discharged – is that debt still owed?

Answer:  If the chapter 7 was a no-asset case (nothing liquidated for payment to creditors), and the debt was otherwise dischargeable (i.e., not taxes, or student loans, or child support, etc.), then the debt is DISCHARGED (eliminated) even though it wasn’t listed.

Many people (even some lawyers and judges) erroneously conclude that unlisted debts aren’t discharged.  To the contrary, there’s a substantial body of law that says otherwise.  Here’s the general rule: A CHAPTER 7 DISCHARGE in a no-asset case covers ALL (otherwise dischargeable) DEBTS, WHETHER THEY WERE LISTED (scheduled) OR NOT.   This Order written by Judge Margaret Murphy from the Northern District of Georgia  DENIES a Motion to Reopen a chapter 7 case to add an omitted creditor, because such a motion is moot.

Over the years, I’ve encountered the situation more times than I can remember.  Lately, whenever a creditor insists that the debt owed to them by my client isn’t discharged because it was omitted, I send the creditor a copy of Judge Murphy’s Order, along with a copy of this article written by Alexander L. Edgar.  The article contains an in-depth analysis of the applicable Code sections and case law.

If you’ve got a bankruptcy question, call or e-mail me for a free and confidential consultation.

Brian R. Cahn: brc@perrottalaw.com

(770) 382-8900

Cartersville | Calhoun | Dallas | Dalton | Atlanta

www.NorthGaBankruptcy.com

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Posted on October 14, 2011, in Bankruptcy and tagged , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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