In Re McKinnon
- Reporters:
- , , ,
- Before:
- Haines
Memorandum of Decision
John McKinnon (“McKinnon” or the “debt- or”) has moved to reopen his no-asset Chapter 7 ease in order to amend his schedules to add the Government Employees Federal Credit Union (“GEFCU”) as a creditor. For the reasons set forth below, I conclude that the case shall be reopened so that the amendment may be effected, notwithstanding the fact that the amendment is not determinative of whether GEFCU’s claim is discharged. 1
Procedural History
McKinnon filed for relief under Chapter 7 on June 24, 1993. The clerk issued a notice of commencement of the case the same day. In addition to setting the date of the § 341 2 meeting of creditors and the bar date for filing objections to discharge and complaints to determine the dischargeability of claims, the notice included the following statement:
AT THIS TIME THERE APPEAR TO BE NO ASSETS AVAILABLE FROM WHICH PAYMENT MAY BE MADE TO UNSECURED CREDITORS. DO NOT FILE A PROOF OF CLAIM UNTIL YOU RECEIVE NOTICE TO DO SO. 3
The trustee filed a final report of “no *56 distribution” on August 18, 1993. 4 McKinnon received his discharge on October 14, 1993, and on December 29, 1993, the ease was closed.
On February 22, 1994, McKinnon moved to reopen his case to add GEFCU’s claim to his schedules. The motion asserted that, after the case closed, GEFCU initiated a collection action against him. McKinnon did not set his motion for hearing, but, pursuant to local rules, the clerk held it to see if any party in interest objected to it. 5 No objections were filed.
Discussion
The authorities are split on the question whether a bankruptcy court should permit a Chapter 7 debtor to reopen his or her no-asset case to add an omitted, prepetition creditor. 6
One line of cases holds that a court may reopen a closed case to permit a debtor to amend his or her schedules by adding a previously omitted creditor. They hold that “a debtor may reopen the estate to add an omitted creditor where there is no evidence of fraud or intentional design.”
In re Stark,
A second line of cases concludes that the bankruptcy court need not, or should not, grant such motions to reopen. They consider that a motion seeking to reopen a closed, no-asset, Chapter 7 case in which no proof of claim bar date has been set in order to add a creditor to the schedules is a “meaningless” exercise.
In re Thibodeau,
I agree that, in a no-asset Chapter 7 in which the clerk has issued the “no need to file” notice regarding proofs of claim, whether a claim is or is not scheduled is not itself determinative of whether the claim is discharged. The foundation for that conclusion is carefully explicated in Judge O’Scannlain’s concurring opinion in
In re Beezley,
*57 But I part company with cases such as Thibodeau and Mendiola in their conclusion that, because amendment of the schedules is not necessary to, or immediately determinative of, the dischargeability of an added pre-petition obligation, the case should not be reopened to permit the amendment. For the most part, such eases unfairly discount or ignore altogether the consequences that can result when a case is later reopened to administer previously undiscovered assets.
Rule 2002(e) anticipates that, once a no-asset notice issues, “should sufficient assets become available for the payment of a dividend, further notice will be given for the filing of claims.” 8 Rule 3002(c)(5) governs that “further notice” in the following terms:
If notice of insufficient assets to pay a dividend was given to the creditors pursuant to Rule 2002(e), and subsequently the trustee notifies the court that payment of a dividend appears possible, the clerk shall notify the creditors of that fact and that they may file proofs of claim within 90 days after the mailing of the notice.
If a debtor is not permitted to reopen a no-asset Chapter 7 case to add creditors to his schedules by amendment, those creditors will not receive the Rule 3002(c)(5) notice when it issues. If they do not receive the notice, do not file a proof of claim, and do not otherwise come by “notice or actual knowledge” of the ease in time to file a proof of claim within the designated period, their claims will not be discharged.
To say that instances of uncovering previously unadministered assets in a formerly no-asset case Chapter 7 case are “rare” and, therefore, that the debtor should not be permitted to burden the court with reopening and amendment merely to buy “peace of mind,”
In re Thibodeau,
*58
To say that the debtor’s interests are meaningfully served by permitting additions to the schedules of liabilities only if and when the case is reopened to administer assets,
In re Thibodeau,
Section 350(b) provides that a bankruptcy case may be reopened “to administer assets, to accord relief to the debtor, or for other cause.” Although amending the schedules to add a prepetition creditor or creditors is not immediately determinative of whether the claim is discharged, it does provide important relief to Chapter 7 debtors who wish to ensure that their discharge is, and will remain, as comprehensive as possible. Moreover, permitting amendment ensures uniform operation of rules that provide for noticing creditors of the right to file claims if and when a dividend becomes possible. Thus, a case should be reopened to permit such amendments.
Conclusion
For the reasons set forth above, the debt- or’s motion to reopen his case in order to amend the schedules by adding a previously omitted creditor will be granted. A separate order will enter forthwith.
Notes
. The facts are not in dispute. This memorandum sets forth conclusions of law in accordance with
I elaborate on disposition of the motion because the motion expresses an expectation that my ruling will determine whether the debt in question is discharged. That is not the case. I also write to explicate the reasons for my conclusion that the motion sets forth grounds for reopening the case to "accord relief to the debtor" in accordance with the Code's requirements.
. Unless otherwise noted, all references to statutory sections are to the Bankruptcy Reform Act of 1978, as amended, codified at
.
Notice of No Dividend. In a chapter 7 liquidation case, if it appears from the schedules that there are no assets from which a dividend can be paid, the notice of the meeting of creditors may include a statement to that effect; that it is unnecessary to file claims; and that if sufficient assets become available for the payment of a dividend, further notice will be given for the filing of claims.
.
See
. See Me.Bankr.R. 9013 (if no objection is filed within seven days, court may act on a motion with or without a hearing).
. Today’s discussion addresses only the instance in which the clerk issued a "no-asset” notice, thereby relieving creditors of the obligation to file proofs of claim by a date certain. Cases, even no-asset cases, in which a bar date has been established may be governed by different princi-pies.
See In re Beezley,
. The long and short of it is this: Section 727 provides for the discharge of prepetition obligations (scheduled or not), and references the exceptions to discharge listed in
If the debt is of a kind specified in
Thus, adding the creditor to the schedules will not, in and of itself, immediately affect discharge-ability. The cases finding reopening and amendment to be appropriate because scheduling determines the breadth of the Chapter 7 discharge generally require that there be "no evidence of fraud or intentional design."
In re Stark,
. See supra n. 3.
. "One of the primary purposes of the bankruptcy act is to ‘relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.’
Williams v. U.S. Fidelity & G. Co.,
. Rule 3002(c)(5) assumes that all creditors who should get the notice are already listed on the schedules. It contains no express provision for extending the ninety day period it establishes.
Cf.