§ 159.4 — Unscheduled Creditors: § 523(a)(3)

Revised: March 29, 2006

[1]

BAPCPA made all of § 523(a)(3) applicable at the completion of payments in a Chapter 13 case. A debt is nondischargeable under § 1328(a) that is:

(3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request.1
[2]

Section 523(a)(3) is familiar to Chapter 7 practitioners because it is the exception to discharge for creditors that were not listed or scheduled during the Chapter 7 case. If the Chapter 7 case was a no-asset case, even an unscheduled debt is dischargeable under § 523(a)(3)(A) if it is not a debt of the kind specified in § 523(a)(2), (4) or (6). In other words, except for debts that fit one of the “fraud” exceptions to discharge in § 523(a)(2), (4) or (6), an unscheduled creditor has no distribution rights in a no-asset Chapter 7 case and accordingly, the debt is dischargeable under § 523(a)(3).

[3]

For most nongovernmental creditors, “timely filing” of a proof of claim in a Chapter 13 case means within 90 days after the first date set for the meeting of creditors under Bankruptcy Rule 3002(c).2 Unlisted and unscheduled creditors that are added to the list and schedules enough in advance of 90 days after the first date set for the meeting of creditors to permit timely filing of a proof of claim are dischargeable under § 523(a)(3)(A). Enough time has not been precisely defined by the courts, though some have cited the 30-day notice requirement in Bankruptcy Rule 4007(c) as evidence of the minimum. This puts a premium on amending the lists and schedules immediately when an unlisted and unscheduled creditor comes to the attention of the debtor or counsel.

[4]

“Notice” for purposes of § 523(a)(3)(A) may be interpreted to be the “effective notice” now addressed at length by new § 342(a).3 There is a hanging sentence at the end of new § 342(c) that requires the full social security number on any notice to a creditor that adds an unlisted debt.4 Debtor’s counsel should take special care when amending the statements and schedules to add an unscheduled creditor to give notice to that creditor that will be effective under new § 342. As an added precaution, counsel should consider filing a proof of claim under Bankruptcy Rule 3004 on behalf of the unscheduled creditor.5 Even an untimely proof of claim filed on behalf of the creditor may provide some assistance in a dischargeability battle under § 523(a)(3)(A).

[5]

Because most Chapter 13 cases include some distribution to unsecured creditors, the “timely filing of a proof of claim” has meaning for purposes of § 523(a)(3)(A). Chapter 7 cases concluding that § 523(a)(3)(A) has no practical effect in a no-asset case because there is no need for unsecured claim holders to file proofs of claim (timely or otherwise) will probably not be useful authority in Chapter 13 cases after BAPCPA. Even when the Chapter 13 plan proposes no distribution to unsecured creditors, an unsecured creditor with a timely filed claim has standing to object to confirmation,6 has standing to move to modify the plan after confirmation7 and otherwise has rights in the Chapter 13 case that arguably give meaning to the timely filing of a proof of claim for § 523(a)(3)(A) purposes.

[6]

A creditor with notice or actual knowledge of the Chapter 13 case in time for the timely filing of a proof of claim will fail the test for nondischargeability in § 523(a)(3)(A). The reported pre-BAPCPA decisions are not consistent with respect to how much notice or knowledge on what schedule is enough for the timely filing of a proof of claim under § 523(a)(3)(A). The Bankruptcy Rules do not specify a minimum amount of notice that must be given in a Chapter 13 case with respect to the deadline for filing proofs of claim.8 Absent notice or actual knowledge of the Chapter 13 case, § 523(a)(3)(A) is likely to be interpreted as a bar to discharge of any unlisted and unscheduled debt.

[7]

Section 523(a)(3)(B) adds to the mix that if the debt is described in § 523(a)(2), (4) or (6),9 then the unlisted and unscheduled debt is nondischargeable unless added to the list of creditors or schedules in time for the timely filing of a proof of claim and the timely filing of a request for a determination of dischargeability. The timely filing of a proof of claim for § 523(a)(3)(B) purposes in a Chapter 13 case would be the same as discussed above with respect to § 523(a)(3)(A)—within 90 days after the first date set for the meeting of creditors. Once again, the amount of time in advance of the 90-day bar date for filing proofs of claim that will be considered enough time for § 523(a)(3)(B) purposes is not solidly defined in the § 523(a)(3) case law.

[8]

The timely filing of a complaint to determine the dischargeability of a debt under § 523(a)(2) or (4) is defined by Bankruptcy Rule 4007(c) as 60 days after the first date set for the meeting of creditors under § 341(a).10 To avoid nondischargeability under § 523(a)(3)(B), a fraud debt of the kind specified in § 523(a)(2) or (4) must be listed or scheduled in time to file a complaint to determine dischargeability no later than 60 days after the first date set for the meeting of creditors. This is 30 days sooner than the deadline for the filing of proofs of claim and thus advances the applicable deadline under § 523(a)(3)(B) by 30 days for unlisted and unscheduled debts specified in § 523(a)(2) or (4). Again, there is no consistency in reported cases with respect to how much time is enough time in advance of the 60-day deadline for the filing of a complaint for § 523(a)(3)(B) purposes.

[9]

Once again, there is a further exception in § 523(a)(3)(B) for the creditor that has notice or actual knowledge of the Chapter 13 case in time to timely file a proof of claim and a determination of dischargeability. If a Chapter 13 debtor or counsel becomes aware of an unlisted or unscheduled debt that may be nondischargeable under § 523(a)(2) or (4), there is every incentive to immediately give notice to the holder of the claim and consider filing a proof of claim on behalf of the creditor under Bankruptcy Rule 3004.

[10]

The conditions for nondischargeability in § 523(a)(3)(B) are conjunctive—the fraud debt must be listed or scheduled in time for both the timely filing of a proof of claim and the timely filing of a complaint to determine dischargeability. Because the deadline for filing complaints to determine dischargeability in Bankruptcy Rule 4007 is 60 days after the first date set for the meeting of creditors and the deadline for timely filing of a proof of claim under Bankruptcy Rule 3002(c) for a nongovernmental creditor is 90 days, the fraud debt must be listed or scheduled in time for the earlier 60-day deadline to satisfy both conditions.

[11]

When the unlisted and unscheduled creditor is a governmental unit, the timely filing of a proof of claim is possible until 180 days after the petition. Accordingly, the appropriate time periods in § 523(a)(3)(A) and (B) should shift for an unscheduled governmental unit.

[12]

The wholesale incorporation of § 523(a)(3) into Chapter 13 practice at the completion of payments under a plan produces some discontinuities that will require judicial interpretation. As mentioned above, the timely filing of a proof of claim for § 523(a)(3) purposes has been interpreted in Chapter 7 cases to mean the filing of a proof of claim when it will mean something in the bankruptcy case. In no-asset Chapter 7 cases, general unsecured creditors are instructed not to file proofs of claim. It has been held that § 523(a)(3)(A) has no meaningful application in a no-asset Chapter 7 case when the filing of a claim will not entitle the creditor to any distribution.

[13]

What is the meaning of “timely filing of a proof of claim” in a Chapter 13 case when general unsecured creditors are not to be paid in full? If the confirmed plan provides a 10 percent distribution to general unsecured creditors, will an unlisted and unscheduled debt that is not a fraud debt be nondischargeable in full or only to the extent of the lost 10 percent distribution through the plan? In Chapter 7 cases, an unlisted and unscheduled creditor receives a nondischargeable debt under § 523(a)(3)(A) in an asset case without regard to the percentage of general unsecured claims that is actually paid from distributions. The same rule applied to Chapter 13 cases renders the entire debt nondischargeable under § 523(a)(3)(A) without regard to the percentage of distribution under the plan. Would the same rule apply if the confirmed plan provides no payment of unsecured debt? Is a zero percent Chapter 13 plan like a no-asset Chapter 7 case such that the “timely filing of a proof of claim” has no meaning for § 523(a)(3)(A) purposes? As mentioned above, even an unsecured claim holder that will receive no distributions under a Chapter 13 plan has other rights that depend on the filing and allowance of a timely proof of claim.

[14]

The wholesale incorporation of § 523(a)(3) into § 1328(a) creates an incongruity with respect to debts that would be nondischargeable under § 523(a)(6). BAPCPA did not make § 523(a)(6) an exception to discharge in a Chapter 13 case at the completion of payments under § 1328(a). A modified version of § 523(a)(6) was added as § 1328(a)(4),11 but § 523(a)(6) itself is not applicable in a full-payment Chapter 13 case.

[15]

But § 523(a)(6) is cross-referenced in § 523(a)(3) as one of the kinds of debts that triggers the additional dischargeability test in § 523(a)(3)(B) that the debt must be listed and scheduled in time to permit the timely filing of a complaint. Another way to look at it is there is no deadline for determining the dischargeability of a § 523(a)(6) debt in a Chapter 13 case that proceeds to discharge at the completion of payments under § 1328(a). But § 523(a)(6) is an exception to discharge in a Chapter 13 case when the debtor seeks a hardship discharge in advance of the completion of payments under § 1325(b).12

[16]

The cross-reference to § 523(a)(6) in § 523(a)(3) could be interpreted in several different ways in Chapter 13 cases after BAPCPA. Under Interim Rule 4007(d), on motion of a debtor for a hardship discharge under § 1328(b), the bankruptcy court is directed to enter an order fixing a time to file a complaint to determine the dischargeability of a debt under § 523(a)(6) and all creditors must be given no less than 30 days’ notice of that time.13 Unless and until a Chapter 13 debtor seeks a hardship discharge under § 1328(b), there will be no deadline in the Chapter 13 case by which a complaint must be filed to determine the dischargeability of a § 523(a)(6) debt. If the debtor completes payments under the plan and becomes entitled to a full-payment discharge under § 1328(a), there will never be a time when a § 523(a)(6) debt could be nondischargeable in the case, and thus there would never be a time by which the holder of such a claim must file a complaint to determine dischargeability. In a full-payment-discharge Chapter 13 case, § 523(a)(3)(B) does not have any application with respect to debts of the kinds described in § 523(a)(6).

[17]

The same cannot be said with respect to debts specified in § 523(a)(2) and (a)(4). After BAPCPA, debts for misrepresentation and fraud under § 523(a)(2)14 and debts for fraud and defalcation in a fiduciary capacity, embezzlement or larceny under § 523(a)(4)15 are nondischargeable at the completion of payments under a plan under § 1328(a). The 60-day deadline after the first date set for the meeting of creditors in Interim Rule 4007(c) would apply with respect to debts specified in § 523(a)(2) and (a)(4) in a Chapter 13 case without regard to the kind of discharge that ultimately results for § 523(a)(3)(B) purposes.

[18]

One obvious application of this new state of affairs is credit card claims in Chapter 13 cases. BAPCPA added § 523(a)(2) as an exception to discharge at the completion of payments under § 1328(a).16 The dischargeability of credit card debts is often litigated under § 523(a)(2). The failure to list or schedule a credit card debt in time for both the timely filing of a proof of claim and the timely filing of a complaint to determine dischargeability would trigger the new exception to discharge in § 523(a)(3)(B). This combination of jeopardies was not possible in a Chapter 13 case prior to BAPCPA if the debtor became entitled to a full-payment discharge under § 1328(a).

[19]

There is pre-BAPCPA case law suggesting that the incorporation of § 523(a)(3) into § 1328(a) is not likely to have a substantial impact in Chapter 13 practice. Some courts concluded that unlisted and unscheduled debts were not dischargeable in Chapter 13 cases—without regard to the provisions of the confirmed plan—because an unscheduled debt could not be “provided for” for purposes of § 1328(a).17 Under the logic of these cases, it did not matter whether the unscheduled debt would otherwise fit an exception to discharge in § 1328(a)—the debt was not dischargeable if not scheduled. Local culture in many judicial districts allowed Chapter 13 debtors to amend the schedules at any time during the Chapter 13 case to add an unscheduled creditor and sometimes to modify the confirmed plan to “provide for” the unscheduled debt.18 To varying degrees, this procedure allowed Chapter 13 debtors to overcome the nondischargeability of an unscheduled creditor by “addition” to the plan after confirmation.

[20]

The impact of § 523(a)(3) on pre-BAPCPA local cultures could be significant. An unscheduled creditor may be entitled to an exception to discharge for its entire debt—without regard to the provisions of the plan or any proposed modified plan—when the debtor attempts to “add” the creditor or modify the plan after the time has expired for the timely filing of proofs of claim. Contrary local practices may be inconsistent with the BAPCPA amendments to § 1328(a). It certainly seems logical that an unscheduled creditor cannot be forced to accept less than full payment of its debt when the time for timely filing a proof of claim has expired in a Chapter 13 case filed after BAPCPA.

[21]

On the other hand, after BAPCPA, the inquiry that determines dischargeability of an unscheduled debt is no longer whether the debt is “provided for” by the plan, but is instead whether the creditor was listed or scheduled or had notice or actual knowledge in time for the timely filing of a proof of claim or the timely filing of a complaint to determine dischargeability. In other words, the dischargeability inquiry with respect to an unlisted and unscheduled creditor will focus on facts other than whether the debt is provided for by the plan. This is a healthy development because some reported pre-BAPCPA decisions struggled to distort the meaning of “provided for” in § 1328(a) to preclude discharge of unscheduled debts that objectively fit quite well in classes of claims that were provided for by the plan.19 After BAPCPA, such distortions will not be necessary because the timing, notice and knowledge inquiries in § 523(a)(3) will determine whether the unlisted and unscheduled debt is nondischargeable, without regard to the provisions of any confirmed plan.

[22]

For obvious reasons, § 523(a)(3) is not one of the “fraud” debts that is treated specially by the Bankruptcy Code in § 523(c). There is thus no deadline in a Chapter 13 case by which a complaint must be filed to determine the dischargeability of debt under § 523(a)(3). Section 523(a)(3) dischargeability litigation may pop up in Chapter 13 cases long after confirmation of a plan. This is quite likely because the accelerated schedule for the hearing on confirmation in § 1324(b), as amended by BAPCPA, will require a confirmation hearing in most Chapter 13 cases within 45 days after the meeting of creditors and before the deadline for the timely filing of proofs of claim or for the timely filing of a complaint to determine the dischargeability of a debt under § 523(a)(2) or (a)(4). It is unlikely that a confirmed plan will address any debt that was unlisted and unscheduled at the time of the filing of the Chapter 13 case.

[23]

Section 523(a)(3) litigation thus has some potential to disrupt already confirmed plans by changing the debtor’s incentives with respect to an unscheduled debt. “Adding” the unscheduled debt to the schedules after confirmation will not necessarily solve the nondischargeability problem under § 523(a)(3). Modification of the plan to separately classify the unscheduled debt for more favorable treatment is likely to draw objections from the trustee and other creditors. Bankruptcy courts are not likely to approve modification of a confirmed plan to separately classify for more favorable treatment a debt that was determined to be nondischargeable under § 523(a)(3) after confirmation.20

[24]

All in all, the addition of § 523(a)(3) as an exception to discharge at the completion of payments under § 1328(a) confirms what experienced Chapter 13 practitioners have always known: there is nothing good to be said for failing to list or schedule a debt in a Chapter 13 case.


 

1  11 U.S.C. § 523(a)(3).

 

2  See § 282.1 [ General Rules: No Enlargement or Exceptions, Except . . . ] § 133.1  General Rules: No Enlargement or Exceptions, Except . . ..

 

3  11 U.S.C. § 342, discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3  Section 342: Notice What Didn’t Happen.

 

4  See § 510.1 [ Unscheduled Creditors ] § 133.3  Unscheduled Creditors after BAPCPA.

 

5  See Fed. R. Bankr. P. 3004, discussed in §§ 285.1 [ Timing, Form, Superseding and Amended Claims ] § 134.1  Timing, Form, Superseding and Amended Claims before 2005, 286.1 [ Strategic Considerations: When to File Claims for Creditors ] § 134.3  Strategic Considerations: When to File Claims for Creditors and 511.1 [ Filing of Claims by Debtor or Trustee: New Rule 3004 ] § 134.2  Filing of Claims by Debtor or Trustee after 2005 Amendments to Bankruptcy Rule 3004.

 

6  See § 219.1 [ Standing to Object ] § 116.1  Standing to Object.

 

7  See § 253.1 [ Standing, Timing and Procedure ] § 126.1  Standing, Timing and Procedure.

 

8  In contrast, Bankruptcy Rule 2002(a) requires 20 days’ notice by mail of the time fixed for filing proofs of claim in a Chapter 11 case pursuant to Bankruptcy Rule 3003(c).

 

9  11 U.S.C. § 523(a)(6) is not an exception to discharge at the completion of payments in a Chapter 13 case even after BAPCPA. See § 554.1 [ Willful or Malicious Injury: § 1328(a)(4) ] § 159.7  Willful or Malicious Injury: § 1328(a)(4).

 

10  Fed. R. Bankr. P. 4007(c), discussed in § 544.1 [ Time for Determining Dischargeability of Debt ] § 156.3  Time for Determining Dischargeability of Debt.

 

11  See 11 U.S.C. § 1328(a)(4), discussed in § 554.1 [ Willful or Malicious Injury: § 1328(a)(4) ] § 159.7  Willful or Malicious Injury: § 1328(a)(4).

 

12  See 11 U.S.C. § 1325(b), discussed in § 354.1 [ Exceptions to Hardship Discharge ] § 160.6  Exceptions to Hardship Discharge before BAPCPA.

 

13  Interim Bankr. R. 4007(d).

 

14  See § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2).

 

15  See § 550.1 [ Fraud and Defalcation: § 523(a)(4) ] § 159.3  Fraud and Defalcation: § 523(a)(4).

 

16  See 11 U.S.C. § 1328(a)(2), discussed in § 549.1 [ False Representations and Fraud: § 523(a)(2) ] § 159.2  False Representations and Fraud: § 523(a)(2).

 

17  See § 349.1 [ Claims Not Provided for by the Plan or Disallowed under § 502 ] § 158.5  Claims Not Provided for by the Plan or Disallowed under § 502.

 

18  See § 260.1 [ To “Add” Prepetition Creditors ] § 127.3  To “Add” Prepetition Creditors.

 

19  See § 349.1 [ Claims Not Provided for by the Plan or Disallowed under § 502 ] § 158.5  Claims Not Provided for by the Plan or Disallowed under § 502.

 

20  See § 463.1 [ Nondischargeable Claims ] § 88.2  Nondischargeable Claims after BAPCPA.