By Ryan C. Wood
First, it happens. Second, it is not the end of the world depending upon the circumstances. A recent Ninth Circuit Court of Appeals case, In re: Cery Bradley Perle addressed this very issue with some not normal circumstances. In the Perle case a creditor tried to challenge the dischargeability of their claim or debt four years after Perle received an order of discharge under Chapter 7. The issue is did the creditor have actual notice of the bankruptcy filing of Perle?
Generally a creditor has 60 days from the first date set for the Section 341 meeting of the creditors pursuant to FRBP 4007(c). There are exceptions and the main one is if the creditor did not know about the bankruptcy filing as a result of the debtor not properly listing the debt in the bankruptcy petition schedules. Schedules D, E and F list the various types of debts a debtor has at the time of filing for bankruptcy protection.
You Must Properly List Debts in Schedules D, E and F
The first problem in Perle’s case was that the creditor’s debt was not properly listed in Schedule E. The debt was listed that could arguably be owed to the creditor in Perle’s case, but the wrong name was listed on Schedule E. So number one, you must properly list the debt in the bankruptcy schedules. The correct creditor name, creditor address and relative amount of the debt. The Court also pointed out that the debt listed in Perle’s Schedule E did not include an amount owed. Ellett v. Stanislaus, 506 F.3d 774 (9th Cir. 2007) provides that a creditor has no duty to conduct a diligent search to identify a debt, but it is the debtor’s and their bankruptcy attorneys responsibility to correctly list the information correctly. In the Perle case the 9th Circuit Court of Appeals characterized Perle’s list of the debt as a serial mischaracterization. The unsaid truth is the Court probably believed Perle intentionally did not list the debt properly in an attempt to avoid a nondischargeability lawsuit.
Does a Creditor have Imputed or Actual Knowledge of the Bankruptcy Case?
The next issue to determine if a creditor gets a bite of the apple, as in the Perle case, four years later is whether the creditor had imputed or actual knowledge of the bankruptcy case. If a creditor does have imputed or actual knowledge of the bankruptcy case then the creditor should have filed the dischargeability complaint timely. Knowledge could be imputed under the agency theory. A bankruptcy attorney is a client’s agent, and consistent with agency law, clients are considered to have notice of all facts known to their lawyer-agent. In the Perle case the former attorney for the creditor knew about the bankruptcy case of the debtor, but the agency theory does not apply given that the attorney no longer represented the creditor regarding the claim against Perle.
The moral to the story is that when filing for bankruptcy protection all efforts should be made to correctly and accurately list debts to creditors. If not, then results like the Perle case are possible. Playing games with who you list or not list is dangerous and arguably commit perjury if you intentionally do not list a party you owe money to in the petition schedules.
