Unlisted Debts are Discharged in Bankruptcy, Even if there was no Money to Pay the Unlisted Creditor

The federal bankruptcy code requires a debtor to file a list of creditors when filing a bankruptcy petition. 11 USC 523(a)(3)(A) states that the debt to an unlisted creditor will not be discharged.

For example, in First Place Bank v. Casino Concepts by Design, Inc. and Terri A. Tate (Mich. App. Docket No. 306883, issued Jan. 29, 2013), Terri Tate appealed a judgment for a debt owed by Casino Concepts and guaranteed by Tate, arguing that her debt to the Bank was discharged during her previous bankruptcy. The lower court held that Tate’s debt to the Bank was not discharged because it was not listed in the bankruptcy petition. Tate argued that that her bankruptcy case was a “no-asset bankruptcy” – meaning the Bank would not have received a distribution from the bankruptcy estate even if it had received timely notice of the bankruptcy proceeding.

The U.S. Court of Appeals for the Sixth Court has since departed from the older “no harm, no foul reasoning” in In re Madaj and now follows the holding of Colonial Surety – non-listed debts are not discharged in bankruptcy, even in a no-asset bankruptcy. The Court’s reasoned that the aim of 523(a) was to assure the creditor notice before discharge and found absurd the idea that timely filing is still available after the bankruptcy proceeding has closed. Therefore, Tates’s non-asset status did not grant her an exception to 11 USC 523(a)(3)(A)’s requirement that creditors be listed when writing a bankruptcy petition.

Authored by Roger Leshinsky, Law Clerk

 

About Melissa Demorest LeDuc, Attorney

Melissa focuses her practice on business formation, mergers and acquisitions, real estate transactions, other business transactions, and estate planning. Melissa has particular experience with family-owned businesses, hotels, apartment complexes, and bars/restaurants. Read More

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