Unscheduled claim filed after bar date is dischargeable if claim filed in time to share in distribution

It is not terribly uncommon for a creditor to be omitted from the list of creditors when a case is filed.  If it is a no asset case, often courts will allow the addition of the creditor, and such debt will be discharged (absent allegations of the type found in §523(a)(2), (a)(4), and (a)(6).  However, if there are assets, and the claim is filed after the last day set to file claims, and if such creditors are paid a share of such assets, the debt is not able to be discharged due to 11 U.S.C. 523(a)(3)(A).  This case involves a somewhat rarer case where a debt is scheduled, and claim filed after a bar date, but for some reason no distribution had been made to creditors as of when the debt was scheduled and the claim filed.

Judge Funk in Jacksonville ruled in favor of the debtor as to a debt that was not scheduled before the claims bar date in a chapter 7, but where the claim was filed in time to share in any distribution.  In re Simmons, 2021 Bankr. LEXIS 2302, Case no 3:18-bk-03267-JAF, Adv 3:20-ap-0081-JAF (Bankr. M.D. Fla. 24 August 2021).   The specific factual background is a bit unusual.  The debtor filed a chapter 7 case in September 2018, initially presumed to be a no asset case.  When it appeared there may be assets to pay creditors, a notice of claims bar date was set for 14 February 2019.  A discharge had already been entered on 26 December 2018.  On 15 January 2020 Debtors supplemented schedule F to add Creative Enters. HK as a general unsecured creditor in the amount of $55,000.   Creative filed a claim in the amount of $79,654.58 on 23 January 2020.  Creative then filed an adversary proceeding asserting that the debt should be nondischargeable under §523(a)(3)(A), noting that the amendment adding them was filed almost a year after the claims bar date had been set.  However it appears no distribution had yet been made to creditors, and Creative would be entitled to receive a distribution if assets are recovered.

11 U.S.C. 523(a)(3)(A) provides that a debt that is not scheduled in time to timely file a proof of claim is not discharged unless the creditor has actual knowledge of the case in order to timely file a claim.  Judge Mark noted that this section should be read in conjunction with §726(a)(2)(C) which provides that a late filed claim is treated as if it was filed timely if the creditor did not possess actual knowledge of the case in time to file a timely claim, and if the claim is filed in time for it to be paid.

The court noted that courts are split on whether a debt in this situation is nondischargeable.   Cases following the plain language approach find the language of §523(a)(3)(A) requires that the debt be nondischargeable even if the creditor knew of the case in time to file a tardy proof of claim and share equally in the distribution.  Disagreeing with this approach, cases following the distribution approach take a holistic view, and ready §523(a)(3)(A) in conjunction with §726(a)(2)(C).  These courts note that the central purpose of the Bankruptcy Code is to allow a fresh start, and that exceptions to discharge must be narrowly construed.  Since §523(a)(3)(A) is only concerned with the ability to file a claim, when a creditor is able to do so and share equally in the distribution, the creditor’s rights to such assets had been adequately protected, and the debt should not be excepted from discharge.¹

The court distinguished Samuel v. Baitcher (In re Baitcher), 781 F.2d 1529, 1534 (11th Cir. 1986) in that such case had to consider grounds pled under §§523(a)(2), (a)(3), (a)(4), and (a)(6).  None of these counts were pled in the case at bar.

1 In re Snyder, 544 B.R. 905, 909-910 (Bankr. M.D. Fla. 2016).^↩