The hidden hazards in failing to list every possible debt or claim in a bankruptcy- you might not be protected!

Recently I was confronted with a question as follows: This gentleman had a small business and filed personal bankruptcy. He neglected to list one of his disgrunteled business customers. The bankruptcy was concluded and he got a discharge.  A year later the customer sued him in state court. He claimed the bankruptcy discharge prevented his being sued but the state court judge had a trial anyway and hit him with treble damages for a violation of the Consumer Fraud Act. He is appealing, without a lawyer.

Here was my answer:

“There are several aspects of this. First, in a no asset case, the consequence of not listing a creditor whose debt arose before the bankruptcy filing is that the debt is still discharged, UNLESS the debt is one that arises from fraud or false pretenses, embezzlement, larcenty, or breach of fiduciary duty, or wilful and malicious intentional injury to another. See Third Circuit decision,  Judd v. Wolfe, 78 F.3d 110 (3d Cir.1996).

“However, the other consequence is that  ithe non listed creditor is never given a deadline to file an adversary proceeding to determine whether the debt was non-dischargeable. Since treble damages were awarded it sounds like the judgment in state court was based on the Consumer Fraud Act. If there was proof of actual fraud (and not just a violation of certain rules and regulations), AND had you listed the creditor in your bankruptcy,  her  claim would have been discharged unless she filed suit in the bankruptcy court to determine the issue within a short specified time. Since that did not happen, the state court could determine if the debt was dischargeable and finding a consumer fraud violation, determine it was not, IF there was actual fraud.  You need to consult with a qualified bankruptcy lawyer right away about this. You need to address this in your appeal.”

Poor guy. All this could have been avoided had he or his attorney been more careful. I always tell clients to list EVERYONE who MIGHT have a possible claim against you. If the client is a business owner, we list every business debt, even if the client thinks she is not personally liable.



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