Bankruptcy Notice to a Creditor Represented by Counsel in State Court Is Adequate

When creditors have been represented by an attorney in state court, a debtor need not — and indeed perhaps should not — give notice of bankruptcy to the creditors’ counsel, according to Bankruptcy Judge Michael B. Kaplan of Trenton, New Jersey.

Three individuals had sued the debtor in state court, alleging they had been defrauded. Several months later, the debtor-defendant filed a chapter 7 petition. Notice of the bankruptcy and the dischargeability deadline went to the creditors, but not to the attorney who had represented them in state court.

Seven months after the deadline for objecting to dischargeability, the creditors filed a motion in bankruptcy court seeking an extension of the deadline. Judge Kaplan denied the motion in his April 16 opinion.

The creditors conceded that they received the notices at their correct home addresses, but they mounted several arguments directed to the sufficiency of the notice. The creditors said they were not proficient in English and did not understand the import of the notice. They also contended that notice was inadequate because it was not given to their attorney.

Judge Kaplan understood “the difficulties that a language barrier creates,” but he said the creditors “do not cite any court rule or controlling case law which mandates that notice be given in multiple languages.” On that issue, he ruled that notice was adequate, and the creditors were not denied due process.

With regard to the debtor’s failure to give notice to the creditors’ counsel in state court, the creditors relied on a 1997 decision by the bankruptcy court in Delaware, In re Grand Union Co., 204 B.R. 864 (Bankr. D. Del. 1997) (Walsh, Bankr. J.).

In Grand Union, the corporate chapter 11 debtor gave notice to personal injury claimants and not to the lawyers who were representing them in state court. The bankruptcy court ruled that notice to the individual creditors was inadequate, in part because the debtor had been dealing with the creditors’ lawyers.

Judge Kaplan said he was “neither bound by, nor persuaded by” Grand Union. The case, he said, “unnecessarily complicates the otherwise plain meaning of” Bankruptcy Rule 2002(g).

Instead, Judge Kaplan chose to follow what he called the majority of courts holding there is no requirement to serve a creditor’s attorney absent a specific request to do so. 

“Further,” Judge Kaplan said, serving the creditors’ counsel might have been improper. He cited instances where notice to counsel was inadequate if the representation had ended or “the nature of the action changed.”

“Given the clear language” of Rule 2002(g), Judge Kaplan joined “the majority of courts” by interpreting the rule “as not mandating service of notice on creditors’ state court counsel.” Consequently, he ruled that the creditors had received adequate notice and therefore denied their motion for an extension of time for objecting to dischargeability.

Comment: Perhaps the best practice is for a debtor to give notices both to the creditor and to the creditor’s counsel.