Opinion
Case No. 97-18785-SSM
June 17, 1998
Timothy J. McGary, Esquire, Fairfax, VA, Counsel for the debtor
MEMORANDUM OPINION AND ORDER
This matter is before the court on the debtor's motion to reopen his case in order to file amended schedules adding an omitted creditor. No opposition has been filed. A hearing was scheduled for June 16, 1998, but counsel for the debtor telephoned the clerk's office that morning requesting a continuance because he had a conflict in another court. Having reviewed the underlying motion, the court concludes that oral argument is not necessary and, accordingly, the court will rule upon the motion pursuant to Local Bankruptcy Rule 9013-1(L) without a hearing. Because reopening the case would not provide relief, the motion will be denied.
Background
The debtor, Walter L. Wilson, Jr., filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code in this court on November 25, 1997. The case was noticed to creditors as a "no asset" case, and no bar date was set for filing proofs of claim. The chapter 7 trustee filed a report of no distribution on December 30, 1997. The deadline established for filing complaints pursuant to § 523(c)(1), Bankruptcy Code and F.R.Bankr.P. 4007(c) was February 20, 1998. On March 4, 1998, the debtor was granted a discharge of his dischargeable debts. Finally, the case was closed on March 17, 1998.
On May 15, 1998, the debtor filed the motion that is currently before the court. It represents that after receiving his discharge, the debtor discovered that he had inadvertently omitted a creditor, "Sunforest Apartments c/o Capstone Credit Services," from his schedules. The debtor asserts that neither the omitted creditor, nor any listed creditor will suffer any prejudice if the debtor is permitted to reopen his case to add the omitted creditor.
The certificate of service for both the motion and notice of hearing reflects service on the affected creditor and the "Interim U.S. Trustee" with no address given for the latter. Thus, it is unclear whether debtor served the motion on the former chapter 7 trustee or on the United States Trustee.
Conclusions of Law A.
Under § 350(b), Bankruptcy Code, a closed bankruptcy case "may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." The decision whether to reopen a closed case is discretionary with the court. Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324 (4th Cir. 1984) (bankruptcy court did not abuse discretion in denying motion to reopen case to file motion to avoid security interest in furniture 8 months after case was closed). A case should not be reopened when doing so would be fufile and a waste of judicial resources. In re Carberry, 186 B.R. 401, 402-03 (Bankr. E.D. Va. 1995) (Tice, J.) (denying motion to reopen no-asset case to schedule omitted creditor). The threshold issue, therefore, is whether, if the case were to be reopened, the court could grant meaningful relief.
B.
The present motion involves the vexing and recurring problem of the unlisted creditor in a chapter 7 bankruptcy. The issue has been previously addressed by this court in several opinions dealing with motions by debtors to reopen their cases to add omitted creditors. In re Showalter, Va. Lawyers Weekly, Mar. 7, 1994 at 1, No. 91-13947-AB (Bankr. E.D. Va. Feb. 4, 1994) (Teel, J.); In re Walters, No. 93-10610-AB (Bankr.E.D.Va. Feb. 16, 1993) (Teel, J.); In re Woolard, 190 B.R. 70 (Bankr. E.D. Va. 1995) (Mitchell, J.); In re Carberry, 186 B.R. 401 (Bankr.E.D.Va. 1995) (Tice, J.). The opinions all conclude that in a no-asset chapter 7 bankruptcy, a debt not listed on the debtor's schedules is nevertheless discharged unless it is a debt of the kind specified in § 523(a)(2), (a)(4), or (a)(6) of the Bankruptcy Code or is nondischargeable under some other provision of the Bankruptcy Code. Conversely, if the debt is of the kind specified in § 523(a)(2), (a)(4), or (a)(6) or is otherwise nondischargeable, it is not discharged simply because the court permits amended schedules to be filed listing the debt. Furthermore, where the debt has not been listed in time to permit the creditor to file a timely nondischargeability complaint under § 523(c), Bankruptcy Code, and F.R.Bankr.P. 4007(c), a state court has concurrent jurisdiction with this court to determine whether the debt has been discharged.
Such debts include those arising from false pretenses, a false representation, actual fraud, false written financial statements, fraud or defalcation while acting in a fiduciary capacity, embezzlement, larceny, or willful and malicious injury.
As succinctly explained by Judge Teel in Walters, supra, a debtor who has failed to list a creditor in a no-asset case has several avenues of relief if pursued on account of the unscheduled debt:
The debtor is entitled to assert his discharge as a defense to any collection action by the creditor, assuming the debt is not of a nondischargeable character . . . as [of a] kind specified in 11 U.S.C. § 523(a)(2), (4) or (6) or under some other § 523(a) exception to discharge. Unless the creditor is suing on the basis that the claim is nondischargeable under some provision of 11 U.S.C. § 523(a), the suit against the debtor violates the discharge injunction. If the creditor continues to pursue the action, despite the debts dischargeable character, the debtor may file a motion to reopen the case to prosecute a motion to hold the creditor in contempt of the discharge injunction. The debtor might also seek to reopen the case to file a complaint to determine whether the debt is nondischargeable, e.g. under 11 U.S.C. § 523(a)(3)(B) as of a kind specified in § 523(a)(2), (4) or (6).
Slip op. at 2.
The clearest exposition of why belated scheduling of an omitted debt has no effect on dischargeability in a no-asset, no-bar-date case is set forth in Circuit Judge O'Scannlain's concurring opinion in Beezley v. California Land Title Co. (In re Beezley), 994 F.2d 1433 (9th Cir. 1993), and there would be little point in attempting to improve upon his analysis. To summarize, § 523 (a)(3) of theBankruptcy Code excepts an unlisted debt from discharge only when the failure to schedule the debt in a timely manner has prevented the creditor from filing a timely proof of claim or — if the debt is of the type specified in § 523(a)(2), (a)(4), or (a)(6) of the Bankruptcy Code — from filing a timely request to determine dischargeability. In a "no-asset" case, typically no bar date is set for filing claims, and § 523(a)(3)(A) "is simply not implicated `because there can never be a time when it is too late to permit timely filing of a proof of claim.'" Id. at 1436. If the omitted debt isnot of the type specified in § 523(a)(2), (a)(4), or (a)(6), the creditor has not been deprived of the right to file a timely complaint to determine dischargeability, and § 523(a)(3)(B) is not implicated either. Since neither of the events specified in § 523(a)(3) has occurred — that is, the omitted creditor has been deprived neither of the right to file a timely proof of claim nor of the right to file a timely nondischargeability complaint — and since the plain language of the statute requires that the creditor have been deprived of one or the other of those rights in order for the debt to be excepted from discharge, it necessarily follows that the omitted debt has been discharged. By contrast, if the omitted debt is of the type specified in § 523(a)(2), (a)(4), or (a)(6), then adding it to the schedules after the deadline for filing a nondischargeability complaint has expired cannot make the debt dischargeable, since under the plain language of § 523(a)(3)(B) such debts are excepted from discharge. Id. at 1437. Additionally, the debtor, by failing to list the creditor in a timely manner, forfeits the protection of § 523(c) of the Bankruptcy Code and F.R.Bankr.P. 4007(c) which permit only the Bankruptcy Court to determine if the debt falls within the ambit of § 523(a)(2), (a)(4), or (a)(6) and imposes a strict deadline for filing such complaints. Id. at 1441.
The court is, of course, aware that many collection attorneys (and perhaps even a few state court judges) erroneously believe that a debt not listed on a debtor's schedules is per se excepted from the debtor's discharge, and that the best evidence the debt was discharged is a copy of the discharge order and the debtor's filed schedules listing the debt. However, a misunderstanding of the Bankruptcy Code is not a sufficient basis to reopen a case merely to file amended schedules when such filing has no legal effect. As discussed above, if the creditor attempts to collect the debt as a personal liability of the debtor, the debtor may move to reopen the case at that time to have the creditor held in contempt or may file a complaint to resolve the dischargeability issue.
Primarily as a pragmatic response to such creditor misunderstanding, this district several years ago adopted a practice of permitting a debtor to file amended schedules in a closed no-asset case without filing a formal motion to reopen the case if the debtor first files an affidavit certifying (1) that the creditor to be added was given 30 days notice of the intended amendment and did not file an objection to said amendment; (2) that the debtor did not intentionally omit the creditor from the original schedules; and (3) that the debtor did not intend to hinder, delay or defraud the creditor. If the creditor objects, the matter is set down for a hearing. Otherwise, the clerk simply files the amended schedules in the closed case. The existence of this procedure does not, however, change the fundamental fact that filing such schedules has no effect on the discharge of the newly-listed obligations.
Accordingly, this court finds that allowing the debtor to reopen the case to file amended schedules would be a fufile act and a waste of judicial resources. In re Carberry. Since no purpose would be served by reopening the case, the court declines to do so.
ORDER
For the foregoing reasons, it is:
ORDERED:
1. The motion to reopen is denied.
2. The clerk will mail a copy of this order to counsel for the debtor, the former chapter 7 trustee, and the United States Trustee.