Chapter 13 trap for the unwary: not listing a creditor in time could mean you still have that debt to pay when the case is over!

In every bankruptcy, a debtor is required to certify that all creditors have been listed. We always caution our clients to include everyone to whom they MIGHT owe money. That way everyone who could sue them to collect a debt gets notice of the bankruptcy and there is no question that all dischargeable debts in fact do get discharged.

All too often, after filing new potential creditors need to be added. But waiting too long to do this can be a serious mistake.

Not listing a creditor risks that later on, that creditor will pursue lawsuits or collection efforts. In the Third Circuit (where New Jersey and Pennsylvania are located), the typical “no asset” Chapter 7 case (where there is nothing distributed to creditors) results in a discharge of all debts that could have been listed and discharged.

But in Chapter 13 cases, it is not so easy. First, any debt not listed will not be discharged. Second, and potentially worse, not listing everyone accurately at the outset could mean that the omitted creditors cannot file a claim in the Chapter 13 case. This means the debtor will be left with this debt still having to be paid when the case is over.

This is a major trap for the unwary. It happens because in a Chapter 13 case, all claims must be filed by a “bar date” set at the start of the case. Late filed claims are not allowed, even if the creditor did not find out about the bankruptcy until after the deadline had passed. And if the creditor cannot file a claim to share in plan payment, then that creditor’s debt does not get discharged, unless the Chapter 13 case is converted to Chapter 7.

Note this could be the result of not listing the creditor, or not providing a proper address. As debtor’s counsel we urge all our clients to get us as accurate an address as possible so this does not happen.

On the other side of the coin, this rule can ensure some degree of fairness to the creditors who did not receive timely notice of the bankruptcy (either by official notice or from other sources of information). We always urge creditors to act right away and investigate as soon as they hear or learn about a bankruptcy filing by someone who owes them money. But if through no fault of their own, they did not learn about it in time to file a claim that will be allowed, there is some recourse.

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