Providing notice of bankruptcy can be sufficient if given to an attorney who had represented the creditor four years earlier, according to the Tenth Circuit.
The appeals court also held that a debtor is not obliged to disclose worthless assets.
A creditor won a $700,000 default judgment for fraud. Attempting to locate assets to satisfy the judgment, the creditor’s attorney took the deposition of the judgment debtor two years later. Four years after the deposition, the debtor filed a chapter 7 petition.
Claiming not to know the creditor’s address, the debtor scheduled the creditor and the judgment, using the address of the attorney who had represented the creditor four years earlier. The deadline for objecting to discharge and dischargeability was about three months after the notice was sent, but the creditor did not lodge objections.
The creditor claimed he learned about the bankruptcy a month after the deadlines but waited an additional eight months to reopen the case and file an objection to the dischargeability of the fraud judgment. He also sought to revoke the debtor’s discharge for failing to schedule estate assets.
Affirmed by the Bankruptcy Appellate Panel, the bankruptcy judge held a trial and ruled in favor of the debtor on both discharge and dischargeability.
On a second appeal, the Tenth Circuit upheld the lower courts in a non-precedential, per curiam opinion on June 13.
The creditor argued that notice to an attorney no longer representing him was constitutionally inadequate.
Quoting the Supreme Court, the circuit court said that notice is adequate if “‘reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action.’” Citing the Seventh Circuit, the Tenth said that “‘a bankrupt is not required to exhaust every possible avenue of information in ascertaining a creditor’s address.”
Again citing the Chicago-based appeals court, the Tenth Circuit said that notice can be imputed to a creditor if given to an attorney representing the creditor in collecting the debt outside of bankruptcy.
The Tenth Circuit ruled that the bankruptcy court’s finding of adequate notice was not clearly erroneous, in part because the creditor submitted no evidence indicating that he had ended the attorney/client relationship with his attorney.
The circuit also upheld the bankruptcy court’s fact findings regarding revocation of discharge.
The creditor argued that the debtor had not disclosed the ownership of assets associated with defunct businesses he had operated. In response, the appeals court said that fraudulent intent, to provide the basis for an objection to discharge, “can be gleaned from the failure to disclose a valuable asset.” [Emphasis added.]
The bankruptcy court found that none of the unscheduled assets were valuable and therefore “appropriately declined to infer fraudulent intent,” the circuit court said.
Again declining to set aside the lower court’s fact findings under the clear error test, the Tenth Circuit held that the bankruptcy court “appropriately declined to infer fraudulent intent from [the debtor’s] failure to disclose the various worthless assets.”