What is “Notice”?  What does it mean to give a Creditor “Notice” of your bankruptcy case?

As a Colorado Springs Bankruptcy Attorney, I always advise my clients that they are required to list all of their creditors in their bankruptcy paperwork.  It is required under the provisions of the Bankruptcy Code.  The reason that all of the creditors must be listed is so that the Court Clerk will send them a Notice that the bankruptcy case has been filed.  That way, if there are assets to be distributed, each creditor may file a proof of claim and receive a proportionate share of the proceeds.

It’s not unusual for a client to ask, “What happens if I forget to list one of my creditors?”

In order to answer that question, we have to know whether the client’s bankruptcy is an “asset” case, or a “no asset” case.  Most people filing for relief under Chapter 7 are allowed to “exempt” most of their property with the result being that they have no assets which can be taken to pay their creditors.  Those are the “no asset” cases.

If the client’s case is a no asset case, the inadvertent omission of a creditor from the Bankruptcy paperwork will have no effect on the client.  The debt will still be discharged.  That was the ruling in a 1987 case in a District of Colorado case, In re Padilla, 84 B.R. 194.

The court held that even if the creditor had received notice of the bankruptcy filing, they would still not have received any money from the bankruptcy estate since it was a no asset case.  In essence the court held that the omission of the creditor in a no asset case was a “no harm — no foul” situation.

So what if there are assets in the bankruptcy case?  In that case the debtor has a problem.  Since the creditor was not listed in the paperwork, they may not have received notice of the bankruptcy case.  If they don’t know about the case, then they won’t know that they should file a Proof of Claim to share in the proceeds.  In that case the debt may not have been discharged, and the debtor may have to pay it.

That’s why it’s so important to make sure that all of the creditors are listed.  That way they will have notice and their debts will be discharged, whether the case is an “asset” case or a “no asset” case.

Other non-Colorado Springs bankruptcy attorneys have also written about bankruptcy “N” words:

Naked          Nondischargeable          Nondischargeable debt

 photo credit: takomabibelot