Bankruptcy is a forms practice, and filling out boxes with correct information, while seemingly mundane, is an extremely important part of the client’s and the attorneys duty.

A recent case pointed out how failure to complete one of these tasks, even during the weeks and weeks after the bankruptcy was  initially filed, proved costly to the debtor.

In the recent Ninth Circuit opinion entitled In re Licup & Castro, No. 23-60017, submitted March 8, 2024, the debtors’ landlord filed a pre-petition lawsuit against them. The landlord obtained a default judgment for $31,780.29. Subsequently, when the debtors filed for bankruptcy, they listed the landlord’s debt, but incorrectly stated the landlord attorney’s address on their list of creditors, and sent the petition to that incorrect address. There was no separate copy of the petition sent to the landlord. 

Consequently, neither the landlord nor the landlord’s attorney received a copy of the bankruptcy petition. The debtors never maintained that they did not discover the error later on, nor that they could not have fixed the error in the attorney address with an amended creditor list.

 

Subsequently, when the debtors filed for bankruptcy, they failed to list the creditor at the attorney’s proper address, and did not mail a copy of the petition to the attorney. The debtors never maintained did not discover the error later on, nor that they could not have fixed the error. The debtors received a discharge.

The bankruptcy trustee determined that there were assets available to pay back some of the debt; the Licup/Castro bankruptcy was not a “no asset case.” When the landlord and his attorney did finally find out about the debtors’ bankruptcy, they filed an “adversary proceeding,” to declare that the full default judgment was still due and owing to the landlord. In other words, the landlord maintained that there was no “discharge” of the default judgment.

The bankruptcy court (aka the trial court, or Bankruptcy District Court), the Bankruptcy Appellate Panel, and ultimately, the Ninth Circuit, all sided with the landlord. The debtor has a duty to notify all creditors of the bankruptcy, and failing that, in a bankruptcy that is not a “no asset case,” the non-notified creditor’s entire debt is not discharged. 11 U.S.C. § 521(a)(1); Federal Rule of Bankruptcy Procedure 1007; also citing to In re Fauchier, 71 B.R. 212, 215 (B.A.P. 9th Cir. 1987) [“this rule is grounded in basic principles of due process: In the absence of such notice, a creditor may well be deprived of her right to have her day in court. Id. To ensure that a creditor has the opportunity to vindicate her property rights, the Bankruptcy Code generally makes a debt nondischargeable if the debt is “neither listed nor scheduled’ “].

The Ninth Circuit distinguished cases such as Beezley and Nielsen, which were “no asset” cases. In those cases, where there are no assets to distribute, the bankruptcy court is loathe to reopen a case where there is an omitted debt or a non-notified creditor (assuming the omission is not driven by fraud). The theory is that re-administering the bankruptcy estate will make no difference; there are no assets to distribute. In re Beezley, 994 F.2d 1433 (Ninth Circuit, 1993) (per curiam); In re Nielsen, 383 F.3d 922 (Ninth Circuit, 2004)

In re Castro & Licup thus stands for the proposition that great care must be taken to fill out bankruptcy forms properly. The decision does not include any explanation as to why the debtors did not properly serve the landlord’s attorney, or why they could not have filed amended papers with the correct address before they received their discharge. Apparently, there was no reasonable explanation.

 

THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, PLEASE CONSULT AN ATTORNEY ! !

 

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