In re Hicks, Bankruptcy No. LA 92-50675-LF.
| Decision Date | 12 July 1995 |
| Docket Number | Bankruptcy No. LA 92-50675-LF. |
| Citation | 184 BR 954 |
| Parties | In re Louise HICKS, Debtor. |
| Court | U.S. Bankruptcy Court — Central District of California |
Ronald M. Stark, Ronald M. Stark & Associates, Norwalk, CA, for debtor.
Debtor has moved to reopen her "no-asset" Chapter 7 case so that she can seek an order holding a prepetition creditor in contempt for violating the discharge injunction of 11 U.S.C. § 524.1 This is the debtor's second motion to reopen this case. The purpose of the first motion was to amend the schedules to add an omitted creditor who had filed suit on a prepetition claim. That motion was denied based upon In re Beezley, 994 F.2d 1433 (9th Cir.1993), which holds that, in a no-asset Chapter 7 case in which no claims bar date was ever set, all prepetition debts are discharged, whether scheduled or unscheduled. The state court, however, refused to halt the proceedings, denied summary judgment, and set the matter on a pretrial schedule heading for an early trial. The debtor now seeks to reopen this case, so that she can obtain an order from this Court to stop the creditor from proceeding further in the state court and to hold him liable for violation of the discharge injunction. For the reasons set forth below, this Court will reopen this case to permit the debtor to file an adversary proceeding against her persistent prepetition creditor.
On November 23, 1992, Louise Hicks filed a Chapter 7 bankruptcy petition. Her discharge was entered in February 1993, and the no-asset case was closed. Eight months later, Melvin Flowers sued the debtor in state municipal court on two promissory notes allegedly signed by the debtor in early 1991, about eighteen months before the bankruptcy filing. Hicks had not listed Flowers as a creditor in her case. Upon being served with the post-discharge complaint, debtor filed her first motion to reopen, seeking to amend her schedules to add the disputed, prepetition claim of Flowers. That motion was denied in January 1994 based upon Beezley.
Now fully informed about the debtor's bankruptcy discharge and about the Beezley decision, Flowers continues to argue that the discharge is inapplicable, solely because of the debtor's failure to schedule his claim. He has, however, never alleged that debtor committed fraud or any other wrongful conduct that might make this debt nondischargeable under § 523(a)(2), (4), or (6). Pressing forward with his state court action, Flowers filed a motion for summary judgment. The debtor contested Flowers' factual allegations and asserted that her discharge barred prosecution of the action. Concluding that a triable issue of fact existed concerning the debtor's liability on the notes, the state court denied the motion on that basis. It declined, without explanation, to rule on the legal effect of the discharge. Facing the prospect of trial on the merits, the debtor filed her second motion to reopen, seeking to hold Flowers in contempt for willful violation of the discharge injunction.
This case involves a recurring problem in individual Chapter 7 bankruptcy cases: how to deal with claims and creditors omitted from the schedules filed by the debtor. Usually the debtor discovers the omission when that creditor files suit against the debtor, or pursues other collection actions. Schedules can be amended to add creditors "as a matter of course at any time before the case is closed." FED.R.BANKR.P. 1009(a).2 But that time is short: a simple Chapter 7 no-asset case will generally be closed by the clerk within four to six months after filing. See Res. & Dev. Dep't, "Analysis of Case Processing Measures," U.S.BANKR.COURT — CENTRAL DIST. OF CALIF., August 1994 (incorporating closing statistics provided by the Administrative Office of the United States Courts) ("Case Processing Rep."). Once a case is closed, a motion to reopen the case for further administration is required before an amendment to the schedules can be filed, a lien can be avoided under § 522(f), or the relief sought here can be obtained.
Omitted creditors by definition are not on the creditor matrix or schedules. Therefore, the general case notices are not sent to them. The key issue is whether their claims are discharged under the circumstances. Section 523(a)(3) addresses this issue, providing that:
The creditor in this case has not asserted that his claim is of a kind specified in § 523(a)(2), (4), or (6). Therefore, § 523(a)(3)(A) governs. The factual question under this subsection is whether the creditor received formal notice from the court or otherwise learned about the bankruptcy case in time to file a proof of claim. If so, the claim is discharged. If not, it is excepted from the discharge. On this record, it is undisputed that the creditor did not have notice until after the case was closed. It is also undisputed that the no-asset notice sent to the scheduled creditors in this case informed them that no claims bar date had been set. Therefore, even a claim filed today would be timely.
Unlike regular civil cases in which the plaintiff must effect proper service in order to obtain jurisdiction over the defending parties, Rule 2002(f) requires the bankruptcy court clerk to give the required notice of the commencement of the bankruptcy case to all creditors. The clerk's only information about the identities and addresses of creditors to be served with the case notices comes from the debtor. Section 521(1) imposes upon the debtor an affirmative duty to file a comprehensive list of creditors. Even emergency filings must be accompanied by a list containing the name and address of "each creditor." Rule 1007(a); see also Official Form 6 (schedules require list of names and addresses of all creditors); Local Bankr.R. 103(7), CALIF.RULES OF COURT: U.S.BANKR. COURT — CENTRAL DIST. OF CALIF. (West 1994) (emergency petitions must contain master mailing list of creditors). This obligation to list all creditors' names and addresses is part of the debtor's duty of full disclosure that is the quid pro quo for the fresh start provided by the discharge. See Local Bankr.R. 105(6)(e), supra (); see also In re Adams, 734 F.2d 1094 (5th Cir.1984) ().
Despite this mandate that all creditors be scheduled, many are not. Debtors often explain in open court that they did not bother to list debts that they intend to pay and not discharge. One study has concluded that 10% of all homeowners do not even schedule their mortgage debt. See Teresa A. Sullivan et al., As We Forgive Our Debtors: Bankruptcy and Consumer Credit in America 134-35 (Oxford Press 1989). This number almost certainly underreports the problem, for the study did not — indeed could not — discover those debts omitted from schedules by debtors who intended to defraud their creditors.
As a matter of economy and efficient administration, the clerk's Rule 2002(f) notice is ordinarily combined with several other notices also required by Rule 2002. The resulting form is awkwardly but descriptively entitled "Notice of Commencement of Case under Chapter 7 or 11, 12 or 13 of the Bankruptcy Code, Meeting of Creditors and Fixing of Dates." See Form 9, Official Bankruptcy Forms. This notice is sent to all scheduled creditors shortly after the filing of the petition. It includes: (1) the notice of the commencement of the case; (2) the notice of the first meeting of creditors to be conducted by the United States Trustee, as required by § 341(a); and (3) the notice of the deadline for filing complaints objecting to the discharge or excepting a particular debt from the discharge, set by Rule 4007(c) as 60 days after the first meeting of creditors.
Rule 2002 contemplates that a notice of the deadline for filing claims will also be included in this omnibus notice. Rule 3002(c) sets the claims deadline as 90 days after the date first set for the meeting of creditors. If, however, the debtor lacks unencumbered assets from which a liquidation could produce a dividend to unsecured creditors, the clerk is authorized by Rule 2002(e) to send a no-asset, no-claims-bar-date version of the Form 9 notice. The version of Form 9 sent out in this case does not set deadlines for filing claims, but rather told creditors:
At this time there appear to be NO ASSETS available from which payment may be made to unsecured creditors. Do not file a proof of claim until you receive notice to do so.
In fact, no-asset, no-bar-date notices are issued in every Chapter 7 case filed in the Central District of California. This practice is expressly encouraged by the Administrative Office of the United States Courts to minimize the clerical time devoted to the docketing and filing of claims in no-asset cases. No-asset cases constitute 95% of all Chapter 7 filings nationally. See Case Processing Rep.,...
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