Perhaps more frequently than not, a debtor may file a bankruptcy petition and fail to include a creditor in his bankruptcy plan or schedules.
Under this set of facts, a creditor can seek protection under the Bankruptcy Code in order to prevent a Chapter 13 debtor from discharging a debt that was not "provided for" by the plan.
In determining whether or not a debt is "provided for" in the Chapter 13 plan or schedules, some courts believe that if the plan or schedules list the debt, or even an estimated amount of the debt, the debt is "provided for." (See Riley vs. Arkansas Department of Finance and Administration, 1996.)
However, changes brought about by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 seem to provide alternative protection to unlisted creditors in cases where the debtor fails to notify the creditor of the bankruptcy proceeding.
The amended Bankruptcy Code added a statutory exception to discharge for debts specified under Section 523(a)(3). Section 523 of the Bankruptcy Code governs the nondischargeability of debts that are not scheduled and where the creditor lacks notice or actual knowledge of the debtor's bankruptcy case.
Section 523(a)(3) provides, in relevant part, that under certain circumstances "a discharge under Section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debtâ�¦neither listed nor scheduled under section 521(1) of this title, with the name – if known to the debtor – of the creditor to whom such debt is owed."
In cases other than those involving debtors who purposely fail to list their creditors in their bankruptcy schedules or plan in an attempt to defraud their creditors, an unlisted creditor may be able to prevent a debtor from discharging his debt where such creditor lacks notice or knowledge of the Chapter 13 case and is unable to file a timely proof of claim.
The burden of establishing that a creditor has received appropriate notice rests with the debtor. However, "[w]henever the creditor receives notice or acquires actual knowledge of the bankruptcy case, the creditor may file a proof of claim, that claim will be timely, and the fact that the debts were not listed becomes irrelevant.
"Section 523(a)(3)(A) simply provides no basis for excepting an unlisted debt from discharge if the creditor has actual knowledge such that he can file a proof of claim." (See In re Madaj, 149 F.3d 467 (6th Cir. 1998).)
In 2007's Moniz case, the debtor's schedules and mailing address matrix did not list the correct mailing address for the creditor to receive notice of the bankruptcy proceedings.
Nevertheless, the creditor received notice of the bankruptcy after receiving a letter from the debtor's counsel indicating that the debtor had filed a Chapter 13 bankruptcy petition and included the bankruptcy case number.
From the facts in Moniz, the court found that the creditor was provided with adequate notice of the bankruptcy case in time to file a timely proof of claim before the claims bar date.
In light of statutory implications that an otherwise dischargeable debt may not be discharged where the debtor fails to list a creditor in his bankruptcy case and does not provide the creditor with actual notice or knowledge of the Chapter 13 case, a debtor should be diligent in listing all of his creditors in his schedules and plan and should amend his schedules to list any omitted creditors in time to allow the creditor to timely file a proof of claim.