Stark, Matter of

• Decision Date: 28 June 1983
• Docket Number: No. 82-3034,82-3034
• Parties: 9 Collier Bankr.Cas.2d 319, 11 Bankr.Ct.Dec. 123, Bankr. L. Rep. P 69,392 In the Matter of Terry Stephen STARK and Debra Jean STARK, Debtors Terry Stephen STARK and Debra Jean Stark, Plaintiffs-Appellees, v ST. MARY'S HOSPITAL, Conducted by the Sisters of the Third Order of St. Francis, a Not-For-Profit Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 322

717 F.2d 322

9 Collier Bankr.Cas.2d 319, 11 Bankr.Ct.Dec. 123,

Bankr. L. Rep. P 69,392

In the Matter of Terry Stephen STARK and Debra Jean STARK, Debtors

Terry Stephen STARK and Debra Jean Stark, Plaintiffs-Appellees, v ST. MARY'S HOSPITAL, Conducted by the Sisters of the Third

Order of St. Francis, a Not-For-Profit

Corporation, Defendant-Appellant.

No. 82-3034.

United States Court of Appeals, Seventh Circuit.

Argued April 4, 1983.

Decided June 28, 1983. ^*

Opinion Sept. 21, 1983.

Darrell E. Statzer, Jr., Monroe, Wilson, Dyar, McDonald & Moss, Decatur, Ill., for defendant-appellant.

John Barr, Whitley, Fuller, Suter, Hopp, Barr & McCarthy, Decatur, Ill., for plaintiffs-appellees.

Before BAUER, POSNER, Circuit Judges, and JAMESON, Senior District Judge. ^**

PER CURIAM.

The sole question presented on this appeal is whether Terry Stephen Stark and Debra Jean Stark (the Starks), appellees, should be allowed to reopen their bankruptcy estate for the purpose of listing an additional creditor, St. Mary's Hospital (the Hospital), appellant, pursuant to 11 U.S.C. Sec. 523(a)(3) and rule 301(e)(4) of the Bankruptcy Act.

The parties have agreed upon the following statement of the case, pursuant to F.R.A.P. 10(d):

The Starks utilized the services of the Hospital from June 22, 1980, until July 3, 1980, and the charge for these services is the underlying debt at issue in this case. On August 28, 1980, the Starks filed a Joint Bankruptcy Petition and were granted a discharge on November 28, 1980. The Starks had insurance and properly submitted the claim of the Hospital to their insurance carrier. At the time of the filing of their Petition, the Starks believed the Hospital's bill would be paid by insurance, and, therefore, the Hospital was not listed in their bankruptcy schedules. On June 4, 1981, the Hospital filed suit and on November 20, 1981, obtained judgment against the Starks for the amount of the bill. Thereafter, the Starks filed a Motion for Relief under 28 U.S.C. 60 with the Bankruptcy Court and sought to have their estate reopened in order that the Hospital's debt could be added and subsequently discharged. The Bankruptcy Court denied that motion, and the Starks appealed to the United States District Court for the Central District of Illinois, Springfield Division. The U.S. District Court reversed the decision of the Bankruptcy Court and allowed the reopening of the estate. The Hospital appeals from that Order.

Appellant Hospital contends that (1) the bankruptcy court, 26 B.R. 178, properly ruled that the Starks failed to meet the requirements of section 523(a)(3) ¹ of the Federal Bankruptcy Code and Bankruptcy Rule 302(e)(4) ² for reopening their estate; and (2) that it was properly within the discretion of the bankruptcy judge to deny the Starks' motion to reopen.

Appellant argues, as the bankruptcy court concluded, that since the Hospital was not listed as a creditor and had no notice or actual knowledge of the bankruptcy, the Starks' debt was not discharged under Sec. 523(a)(3). It is argued further that even if the case is reopened, the Hospital would be precluded from filing a claim because it is barred by Bankruptcy Rule 302(e)(4) providing that claims must be filed within six months after the first date set for the first meeting of creditors.

In reversing the decision of the bankruptcy court denying Starks' motion to reopen, the district court found that: (1) the Starks did not possess assets subject to the claims of their creditors; (2) all the creditors received was a notice stating that it was unnecessary to file a claim unless additional assets were discovered, in which case the creditors would be notified and given an opportunity to file a claim; (3) the time for filing the claim had not passed and any creditor could file a claim if assets were discovered by the trustee; (4) even though the Hospital was not listed on the schedule of creditors, it is no different than any other creditor and may file a claim if assets are discovered by the trustee; (5) the failure to schedule the Hospital as a creditor was not the result of fraud or intentional design, (citing In re Cafferky, [1977-78] Bankr.L.Rep. (CCH) p 66,518 (Bankr.E.D.Tenn. July 29, 1977)); (6) section 523(a) should not be mechanically applied to deprive a debtor of a discharge in a no asset case where there is no showing of fraud or genuine harm to the creditors, (citing In re Callahma, [1977-78] Bankr.L.Rep. (CCH) p 66,465 (E.D.Ore. May 5, 1977)); and (7) the bankruptcy court should exercise its equitable powers with respect to substance and not technical considerations that will prevent substantial justice, (citing Kenneally v. Standard Electronics Corp., 364 F.2d 642, 647 (8 Cir.1966)).

We agree with the district court. In a no-asset bankruptcy where notice has been given pursuant to Rule 203(b), a debtor may reopen the estate to add an omitted creditor where there is no evidence of fraud or intentional design. In this case the creditor has not been harmed in any way, and the debtors have not been required to forfeit any of their benefits under the Bankruptcy Code.

We cannot agree with the Hospital's...