Notice to creditors is critical to eliminate debts. Sending a notice to too old an address may not work.

by Michael Reed Barnett on Nov. 07, 2018

Bankruptcy & Debt Bankruptcy & Debt  Bankruptcy Bankruptcy & Debt  Credit & Debt 

Summary: If a creditor does not receive notice of a bankruptcy, their debt may not be eliminated by the bankruptcy case, even if the case is successful. If addresses are not quickly corrected, or a creditor added soon after filing, it may not be possible to add the creditor later. If an address is incorrect or outdated, the debt may not be eliminated. In one recent decision, the debtor sent a notice to an attorney that had represented the creditor four years earlier instead of to an address shown on the judgment to the creditor itself. While the debtor 'got away with it' in this particular case (though incurring substantial additional fees in the process), under very slightly different circumstances the debt would not have been eliminated.

  In In re: TODD J. MCNALLY, Debtor. MICHAEL CARNS, Appellant, v. TODD J. MCNALLY, Appellee., No. 17-1367, 2018 WL 2974411 (10th Cir. June 13, 2018) the 10th Circuit affirmed a bankruptcy finding of sufficient notice to a creditor who had brought a §523(a)(3)(B) action asserting it was not noticed of the bankruptcy, and that the debt should have been nondischargeable.  The Debtor had sent the notice to the address of the creditor's attorney, who had taken Debtor's deposition 4 years earlier rather than to the creditor's address as shown on a judgment against the creditor.  The bankruptcy case was discharged without objection, but the creditor sought to reopen the case and deny the discharge and dischargeability of his debt after a collection agency notified him that the debtor had filed bankruptcy.  The bankruptcy court denied the creditors request for a non-dischargeability judgment finding that there was no evidence that the address of the attorney was incorrect or that mail was returned from the attorney.   After affirmance by the B.A.P., the creditor appealed to the 10th Circuit.  

    The 10th Circuit quoted the relevant staute: "[a] Chapter 7 debtor cannot discharge a fraud debt that is “neither listed nor scheduled ... in time to permit ... [a creditor’s] timely filing of a proof of claim and timely request for a determination of dischargeability of such debt ... unless [the] creditor had notice or actual knowledge of the case in time for such timely filing and request.” 11 U.S.C. § 523(a)(3)(B)."  Id. at 2.    In bankruptcy,  “[n]otice requires that a debtor use reasonable diligence under the circumstances to inform a creditor of the bankruptcy petition, but a bankrupt is not required to exhaust every possible avenue of information in ascertaining a creditor’s address." 1  Notice to a creditor's attorney may be imputed to the creditor. 2  The 10th Circuit followed this reasoning, noting no evidence that the attorneys representation had ceased, nor any intervening event that should have caused the debtor to question the use of the attorney's address to notify the creditor.  Finding that the factual conclusions by the bankruptcy court as to notice were not clearly erroneous, it affirmed the lower court's findings. 


  The creditor also sought to revoke the discharge on the basis that the debtor did not disclose his interest in two books he wrote, a currency trading account, and a former business, as well as a couple of transfers.  The 10th Circuit initially agreed with the bankruptcy court's determination that the creditor failed to exercise due diligence in seeking to deny the discharge before the discharge was entered.  It also found that the creditor failed to challenge the lower court's finding of no material intent to defraud, instead only challenging the finding of materiality.   Even as to materiality, the court agreed with the bankruptcy court.  Materiality requires a showing that the relevant information was something that creditors and the trustee reasonably would have regarded as significant in identifying the assets of the estate that could be liquidated and used to satisfy claims.  As no such showing was made, the bankruptcy court's finding was not clearly erroneous.


In re Herman, 737 F.3d 449, 453 (7th Cir. 2013)↩

Id. at 454.

Michael Barnett




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