The federal bankruptcy rules permit a bankruptcy court in no asset cases to choose not to fix a bar date in which proofs of claim must be filed. Thus, courts adopting the no harm, no foul reasoning found that there was no date in which to timely file the proof of claim and therefore no triggering of Bankruptcy Code section 523(a)(3)(A). See, e.g., In re Beezley, 994 F.2d 1433, 1435-37 (9th Cir. 1993).

Recently, however, the First Circuit Court of Appeals rejected this reasoning, and held that even in a no asset case, if a debt or claim is not scheduled, then the debt is not discharged absent a reopening of the bankruptcy case.

The court’s reasoning in Colonial Surety Co. v. Weizman, 564 F.3d 526 (1st Cir. 2009), is based upon the equities of the situation. Providing notice, even in a no asset case, allows creditors to participate in the case and to argue that there may be assets available. An honest debtor can still have the debt discharged if he asks the bankruptcy court to reopen the case to list the creditor who was inadvertantly omitted and who would have received no benefit from the initial notice. This properly leaves the burden squarely on the debtor’s shoulders to disclose the debt or to explain why it was omitted.

The court appears to protect the institutional integrity of the bankruptcy court so that debtors can not argue that it doesn’t make any difference anyway. Creditors and parties in interest, by this decision, are being afforded a modicum of due process and an opportunity to be heard even in no asset bankruptcy cases.

The lesson to learn from Weizman is to include every possible claim or debt against a debtor on the bankruptcy schedules. We always advise clients to err on the side of over disclosure. Even if a debtor isn’t sure whether a particular debt has been paid or is still owed, we advise the debtor to list the claim. The debtor can always list the creditor as holding a disputed claim. However, by the Colonial Surety case, if a debtor inadvertantly omits a creditor from his bankruptcy filng, it becomes expensive later to move to reopen the case and amend the debtor’s schedules.

Claims that are omitted from the schedules may later be discharged but only after the debtor pays to reopen the case and only provided that the debtor can prove the omission was inadvertant and otherwise innocent.