The Middle District of Florida is on a roll. For the third day in a row, we are reporting on decisions from Orlando and Jacksonville.
Today, we report how Bankruptcy Judge Jerry A. Funk of Jacksonville took sides on a split: If a creditor is not scheduled until after the bar date, is the debt excepted from discharge even if the claim was belatedly scheduled in time for the creditor to receive a discharge?
A couple filed a chapter 7 petition in what initially appeared to be a “no asset” case. After the debtors received their general discharges, the trustee served notice for creditors to file claims.
In their original schedules, the debtors did not list a creditor with a judgment for about $80,000. Consequently, the judgment creditor did not receive notice of the bar date and evidently was unaware of the bankruptcy.
Eleven months after the bar date, the debtors amended their schedules to list the judgment creditor with a nonpriority unsecured claim. A few days later, the judgment creditor filed a claim. By that time, the trustee had collected no assets and had made no distributions.
The creditor filed a complaint seeking a declaration that the debt was not discharged under Section 523(a)(3)(A). That section says that a claim is not discharged if it was not scheduled in time for the creditor to file a timely claim.
Indeed, the complaint was factually correct. The claim had not been scheduled in time for the creditor to file a claim before the bar date.
The debtors countered by saying that tardy scheduling was not in bad faith and that the claim was filed in time to be paid.
In his August 24 opinion, Judge Funk explained how the courts are split. The question, he said, is whether Section 523(a)(3)(A) should be read in conjunction with Section 726(a)(2)(C).
Judge Funk described Section 726(a)(2)(C) as providing that “a late filed claim is treated as though it was timely filed if the creditor did not possess actual knowledge of the case in time to file a timely proof of claim, and the claim is filed in time for it to be paid.”
The courts take two approaches, Judge Funk said. Courts following the “plain language” approach read Section 523(a)(3)(A) in isolation. They read the section as not differentiating between late-filed claims that are filed in time to receive a distribution and those that are not.
The plain-language courts therefore believe that a debt is not discharged even if the creditor had knowledge of bankruptcy in time to file a claim that would receive a distribution. For them, holding otherwise would make the “timely” language in Section 523(a)(3)(A) meaningless.
Other courts follow what Judge Funk called the “distribution approach.” Courts in that camp believe that the two sections should be read together along with the central purpose of bankruptcy to give debtors a fresh start. Therefore, they read Section 523(a)(3)(A) narrowly and interpret the section as being concerned only with the ability to file a claim.
For courts taking the distribution approach, the determinative factor is whether the creditor had notice of bankruptcy in time to share in the distribution, even if the claim missed the bar date.
Judge Funk followed the distribution line of cases. Because the claim was filed in time to share in the distribution, he ruled that the debt would not be excepted from discharge under Section 523(a)(3)(A).
The Middle District of Florida is on a roll. For the third day in a row, we are reporting on decisions from Orlando and Jacksonville.
Today, we report how Bankruptcy Judge Jerry A. Funk of Jacksonville took sides on a split: If a creditor is not scheduled until after the bar date, is the debt excepted from discharge even if the claim was belatedly scheduled in time for the creditor to receive a discharge?
A couple filed a chapter 7 petition in what initially appeared to be a “no asset” case. After the debtors received their general discharges, the trustee served notice for creditors to file claims.
In their original schedules, the debtors did not list a creditor with a judgment for about $80,000. Consequently, the judgment creditor did not receive notice of the bar date and evidently was unaware of the bankruptcy.
Eleven months after the bar date, the debtors amended their schedules to list the judgment creditor with a nonpriority unsecured claim. A few days later, the judgment creditor filed a claim. By that time, the trustee had collected no assets and had made no distributions.
The creditor filed a complaint seeking a declaration that the debt was not discharged under Section 523(a)(3)(A). That section says that a claim is not discharged if it was not scheduled in time for the creditor to file a timely claim.
Indeed, the complaint was factually correct. The claim had not been scheduled in time for the creditor to file a claim before the bar date.
The debtors countered by saying that tardy scheduling was not in bad faith and that the claim was filed in time to be paid.
In his August 24 opinion, Judge Funk explained how the courts are split. The question, he said, is whether Section 523(a)(3)(A) should be read in conjunction with Section 726(a)(2)(C).