After the discharge, the debtor wondered how her agreement with a former business partner to pay the former partner was affected by the bankruptcy, since the partner wasn’t listed in the schedules.
After wondering how the client hadn’t mentioned it and I hadn’t flushed it out, I said a prayer to St. Beezley for the protection of fools in bankruptcy.
Beezley is the 9th Circuit case that holds that the claim of an unscheduled creditor in a no asset case is nonetheless discharged, unless the creditor has a claim under 523(a)(2), (4), or (6) that the debt is nondischargeable. The creditor, upon learning of the bankruptcy, has the opportunity to appear in bankruptcy court and press the issue of non dischargeability.
This omission is part of the frequent client world-view that they don’t “owe” debts if the debt is current or is otherwise quiescent, such as the client’s guarantee of a debt that is so far current. Or, they don’t “owe” a debt if the creditor doesn’t send a monthly statement. Or they don’t owe the debt if no one else knows about it.
I’ve already sent a letter to the former partner advising of the bankruptcy so as to set the stage for a claim of laches if the issue pops up a long way down the road.
I’ll be revising my client questionnaire to ask for the name and address of former business partners, investors, members of LLC’s, shareholders, and disgruntled former employees, so that everyone with a potential claim against my client gets notice and is bound by the deadlines in the rules to file objections to dischargeability.
And reminding myself, with apologies to Shakespeare, that there are more things in heaven and earth than are dreamt of in most client’s philosophy.
Another phantom creditor: the IRS
Getting the most from the initial client interview
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