The answer differs depending on the nature of the debt and under which chapter the bankruptcy case was filed.

I.          The Key Exception To Discharge

The key provision of the Bankruptcy Code that we use to answer the question is 11 U.S.C. § 523(a)(3), which states (with emphasis added):

A dischargeunder section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt— . . . neither listed nor scheduled under section 521 (a)(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;

If you’re not used to reading statutory language you may naturally ask:  What does all of this mean?  One thing is clear:  this statutory provision concerns debts that were “neither listed nor scheduled” in the bankruptcy papers “in time to permit . . .”  But to permit what?  There are two things that the creditor would have been able to do in a timely fashion if the debt had been properly scheduled, but cannot because of the oversight.

II.        Unscheduled Creditors Cannot File Proofs of Claim

First, the creditor is able to file a proof of claim in the case if it has been scheduled.  So what is a proof of claim?  It is an application, with supporting documentation, filed by a creditor as a way of participating in any payout that might occur in the case.

In a Chapter 11, 12, or 13 case the payout takes place on a monthly basis because those chapters typically involve multi-year partial debt repayment plans.  Creditors who timely filed proofs of claim receive regular payments pursuant to the terms of the judge-confirmed repayment/reorganization plan.

In a Chapter 7 case there usually is no payout.  However, if the debtor has nonexempt assets – i.e., possessions that cannot be exempted using the appropriate exemption table – then the Chapter 7 Trustee assigned to the case will liquidate those assets and distribute the proceeds to the creditors who have timely filed proofs of claim.  The distribution is done on a pro rata basis according to certain priority rules found in 11 U.S.C. §§ 507(a) and 726.

Thus, in a Chapter 7, 12, or 13 case if a creditor fails to file a proof of claim within the time limits found in Rule 3002(c) of the Federal Rules of Bankruptcy Procedure (FRBP) (the gist:  government creditors have 180 days from the filing date, other creditors have 90 days from the first date set for the 341(a) meeting of creditors it receives no payout.

In a Chapter 11 case the proof of claim timetable is set by the Court pursuant to FRBP 3003(c)(3).  However, the unscheduled creditor won’t know what the timetable is, so its proof of claim rights will also be prejudiced, and it will receive no payout either.

III.       Unscheduled Creditors Cannot Challenge A Debt’s Discharge

Second, the scheduled creditor can challenge the discharge of a debt that could be characterized as falling within the exceptions of § 523(a)(2), (4), or (6).  These exceptions cover debts incurred through fraud, breach of fiduciary duty, or willful and malicious harm to a person or property, respectively.

The challenge is accomplished through a special kind of lawsuit, called an adversary proceeding, filed in the Bankruptcy Court pursuant to § 523(c).  However, according to FRBP 4007(c) such a lawsuit must be filed no later than sixty days after the first date set for the 341 meeting of creditors, and there is no wiggle room.  Thus, if the creditor isn’t scheduled, it won’t receive notice in time to file the adversary complaint.

In sum, if the creditor isn’t scheduled it can’t timely file a proof of claim or timely challenge the dischargeability of the debt in question – at least under any of § 523(a)(2), (4), or (6).  For that reason, Congress included § 523(a)(3) in the Code.

By the way, it is worth noting that the 60-day bar date of FRBP 4007(c) only applies to the § 523(a)(2), (4), or (6) exceptions to discharge.  The other § 523(a) exceptions have no such time limitation and are governed by FRBP 4007(b), which provides:  “A complaint other than under § 523(c) may be filed at any time.”

IV.       The Chapter 7 No-Asset Exception

Based on the above discussion you might conclude that an unscheduled debt is never dischargeable in bankruptcy.  However, there is an important holding of the Ninth Circuit Court of Appeals that provides an exception to this rule in a “no-asset” Chapter 7 case, if the original debt was of the dischargeable variety – i.e., would have been discharged if scheduled.  That case is In re Beezley, 994 F. 2d 1433 (9th Cir. 1993).

In Beezley the debtor, Gilbert Beezley, filed Chapter 7 bankruptcy papers.  His was a no-asset case, and he was granted a Chapter 7 discharge.  Subsequent to the Court closing his case, Mr. Beezley found out that he had omitted a creditor, and filed a motion to reopen the case so he could amend his Schedule F to include that creditor.  The Bankruptcy Court denied his motion, so he appealed to the Bankruptcy Appellate Panel, which affirmed the Bankruptcy Court’s decision.  Therefore, he appealed to the Ninth Circuit Court of Appeals.  The Ninth Circuit affirmed the rulings of the lower courts using reasoning that is worth reviewing.

A.        No Proof Of Claim Prejudice

The Court reasoned that since the case was a no-asset Chapter 7, no creditor was prejudiced in its ability to file a proof of claim because there would have been no bankruptcy payout in which the creditor could have participated.

B.        No Correcting The Adversary Proceeding Prejudice

The Court’s holding on the dischargeability question was extremely terse, so Judge O’Scannlain shed some light on it in a concurring opinion:

Similarly, even if an omitted debt falls under section 523(a)(3)(B), no purpose is served by reopening solely in order to amend the schedules; scheduling, per se, is irrelevant to dischargeability even under this subparagraph once a case is closed.  As noted above, section 523(a)(3)(B) provides that, if the debt flows from an intentional tort of a kind specified in the relevant paragraphs, the debtor’s failure to schedule in time to provide notice to the creditor of the need to seek an adjudication of dischargeability is conclusive (at least in the absence of actual knowledge of the bankruptcy on the part of the creditor).  The debt is not discharged.  Scheduling makes no difference to outcome. Reopening a case does not extend the time to file complaints to determine dischargeability.  Either the creditor had actual, timely notice of the [case] or he didn’t.  Amending the schedules will not change that.

In re Beezley, 994 F. 2d at 1437 (internal quotes omitted).

In other words, if Beezley had been able to reopen his case to add the creditor, the creditor still couldn’t have initiated the adversary proceeding because the 60-day bar date had long since passed.  Therefore, there was no point in allowing him to reopen the case to amend.  It wouldn’t have left the creditor any less prejudiced.

Moreover, if the debt was of the non-dischargeable variety, then it wasn’t discharged regardless of whether or not it was scheduled.

But . . . and this is an important but:  If the debt would have been dischargeable if scheduled, then it was discharged even though it wasn’t scheduled.  Thus, an unscheduled credit card debt, or medical debt, that was old enough on the day of filing to avoid claims of fraud based on recentness, was discharged.

Of course, if you’re filing for bankruptcy protection it is safest to list everyone to whom you owe money on the day of filing, especially since you will be swearing under penalty of perjury – both in the papers, and at the 341 meeting of creditors – that you did list all of your creditors.

One way to reduce the likelihood of omitting a creditor is to order your credit reports as part of the process of preparing the papers.  A good bankruptcy attorney will, as a matter of course, order the reports and use them in preparing the papers.  However, since the credit reports are fallible – they are, after all, not delivered from Mt. Sinai – it is important to review your records to make sure that every creditor is listed.

V.        The Right Of Unscheduled Creditors In Repayment/Reorganization Cases

A final note is in order.  What rights does the creditor have who has not been included in a plan, such as in a Chapter 13 bankruptcy?  Is it just left out in the cold?

As we have seen, the creditor cannot file an untimely proof of claim.  However, the underlying debt is non-dischargeable (in a Chapter 7, 11, or 12 pursuant to § 523(a)(3), and in a Chapter 13 because of §§ 1328(a)(2) and (c)(2)).

Therefore, in Jones v. Arross, 9 F.3d 79, 81-82 (10th Cir. 1993) the Tenth Circuit Court of Appeals held:

The Bankruptcy Code, however, specifically provides a remedy for persons in Ms. Arross’ situation.  Because she was not listed among Mr. Jones’ creditors, her claim is nondischargeable.  See 11 U.S.C. § 523(a)(3).  She may now petition the bankruptcy court for relief from the stay and bring an action against Mr. Jones, or she may wait until the case ends and bring such an action.

Therefore, the unscheduled creditor can either seek relief from the automatic stay of § 362(a), and then sue in state court.  Or it can wait until the end of the bankruptcy case and then sue in state court (though there may be statute of limitations considerations that militate against waiting).