Unlisted Debts Are Not Discharged in First Circuit

Debts which are not listed in bankruptcy schedules are not discharged in the First Circuit, which covers Puerto Rico and New England (except Connecticut and Vermont). The only exception is if that creditor otherwise knew of the bankruptcy filing when it happened. They are discharged elsewhere in the country.

You should list all your debts.  You should list all medical bills even if you believe them to be covered by insurance, because the insurance company may later deny the claim. You should list cosigned or guaranteed debts of others even if payments are current, because a future default means the debt comes back on to you.

This is due to a First Circuit ruling that an unlisted possible indemnification obligation (a type of guarantee of another’s debt) was not discharged. The debtor didn’t list the contingent debt in his no-asset case because nothing was owed at the time of the bankruptcy filing – it arose one year later, when the other party defaulted on a future construction performance. Too bad for the debtor.

Established lower court precedent in Massachusetts and elsewhere, and other circuit courts, had approved the discharge of unlisted debts in no asset cases. The First Circuit reversed the lower courts and disagreed with the other circuits. An unlisted debt is not discharged. It left a door open for a debtor to ask that a case be reopened to add an unlisted creditor, but good cause must be shown for the omission.

This adds another nasty burden to the well-meaning debtor who does not have perfect, super-human records.   A great place to begin is with your free credit reports.  Be sure to include all the debts listed there, even those which are charged off or sold, in your bankruptcy filing.  You even want to list the debts you intend to keep because (1) it’s required, and (2) you don’t have a crystal ball.  Perhaps tomorrow you get tired of shoveling snow and want to give up on your home.

Hey, it happens.