Opinion
Case No. 96-17287-SSM
April 15, 1999
David E. Jones, Esquire, Fairfax, VA, of Counsel for the debtors
Denise L. Palmieri, Esquire, Palmieri Palmieri, P.C., Vienna, VA, of Counsel for the Board of Directors of Princeton Woods Townhomes Association, Inc.
MEMORANDUM OPINION AND ORDER
A hearing was held in open court on April 13, 1999, on the objection of the Board of Directors of Princeton Woods Townhomes Association, Inc. ("the Association") to the debtors' attempt to file an amended schedule of debts in their closed chapter 7 case listing the Association as the holder of a "disputed" $823 claim. The Association and the debtors were present by counsel. The court ruled from the bench that the mere filing of amended schedules would have no effect on whether or not the claim was discharged, and that any ruling with respect to that issue would require the filing of an appropriate adversary proceeding. The purpose of this memorandum opinion is to explain more fully the basis for the court's ruling.
Background
Ronald Orlando Tiller and Kathy Ann Sabrina Tiller ("the debtors") filed a joint voluntary chapter 7 petition in this court on December 31, 1996. The Association was not listed as a creditor. The case was noticed to creditors as a "no-asset" case, and no deadline was set for the filing of proofs of claim. The trustee filed a report of no distribution on February 10, 1997. The debtors received a discharge of their dischargeable debts on April 17, 1997, and the case was closed the following day. On February 25, 1999, the debtors filed a "Certificate and Affidavit for Adding Creditors to Schedules in a Closed Case," to which they attached an amended Schedule F listing a "disputed" claim by the Association for homeowners association dues in the amount of $823. On March 22, 1999, the Association filed the "Motion in Opposition to Debtors' Amended Schedule F" which is presently before the court.
Discussion
It is not clear on the present record whether the Association's claim represents a prepetition or post-petition liability or some mixture of both. However, since the Association represents in its pleadings that $485.62 of the charges consist of homeowners association assessments for the period from January 1, 1997 to December 31, 1997, it seems reasonable to conclude that both prepetition and post-petition charges are involved. It is not, however, necessary to determine that issue for the purpose of the present motion, since the mere filing of amended schedules would not affect the dischargeability of either prepetition or post-petition assessments.
It is represented that record title to the property was transferred to new owners on December 2, 1998.
A. Prepetition Assessments
The question with respect to that portion, if any, of the Association's claim which represents prepetition assessments is whether failure of the debtors to list the claim on their schedules results in the debt surviving discharge. That issue has been addressed by this court in several opinions dealing with motions by debtors to reopen their cases to add omitted creditors. In re Showalter, Va. Lawyers Weekly, Mar. 7, 1994 at 1, No. 91-13947-AB (Bankr. E.D. Va. Feb. 4, 1994) (Teel, J.); In re Walters, No. 93-10610-AB (Bankr. E.D. Va., Feb. 16, 1993) (Teel, J.); In re Carberry, 186 B.R. 401 (Bankr. E.D. Va. 1995) (Tice, J.); In re Woolard, 190 B.R. 70 (Bankr. E.D. Va. 1995) (Mitchell, J.). The opinions all conclude that in a no-asset chapter 7 bankruptcy, a debt not listed on the debtor's schedules is nevertheless discharged unless it is a debt of the kind specified in § 523(a)(2), (a)(4), or (a)(6) of the Bankruptcy Code or is nondischargeable under some other provision of the Bankruptcy Code. Conversely, if the debt is of the kind specified in § 523(a)(2), (a)(4), or (a)(6) or is otherwise nondischargeable, it is not discharged simply because the court permits amended schedules to be filed listing the debt.
Such debts include those arising from false pretenses, a false representation, actual fraud, false written financial statements, fraud or defalcation while acting in a fiduciary capacity, embezzlement, larceny, or willful and malicious injury.
As succinctly explained by Judge Teel in Walters, supra, a debtor who has failed to list a creditor in a no-asset case has several avenues of relief if pursued on account of the unscheduled debt:
The debtor is entitled to assert his discharge as a defense to any collection action by the creditor, assuming the debt is not of a nondischargeable character . . . as [of a] kind specified in 11 U.S.C. § 523(a)(2), (4) or (6) or under some other § 523(a) exception to discharge. Unless the creditor is suing on the basis that the claim is nondischargeable under some provision of 11 U.S.C. § 523(a), the suit against the debtor violates the discharge injunction. If the creditor continues to pursue the action, despite the debts dischargeable character, the debtor may file a motion to reopen the case to prosecute a motion to hold the creditor in contempt of the discharge injunction. The debtor might also seek to reopen the case to file a complaint to determine whether the debt is nondischargeable, e.g. under 11 U.S.C. § 523(a)(3)(B) as of a kind specified in § 523(a)(2), (4) or (6).
Slip op. at 2.
The clearest exposition of why belated scheduling of an omitted debt has no effect on dischargeability in a no-asset, no-bar-date case is set forth in Circuit Judge O'Scannlain's concurring opinion in Beezley v. California Land Title Co. (In re Beezley), 994 F.2d 1433 (9th Cir. 1993), and there would be little point in attempting to improve upon his analysis. To summarize, § 523(a)(3) of the Bankruptcy Code excepts an unlisted debt from discharge only when the failure to schedule the debt in a timely manner has prevented the creditor from filing a timely proof of claim or — if the debt is of the type specified in § 523(a)(2), (a)(4), or (a)(6) of the Bankruptcy Code — from filing a timely request to determine dischargeability. In a "no-asset" case, typically no bar date is set for filing claims, and § 523(a)(3)(A) "is not implicated `because there can never be a time when it is too late to permit timely filing of a proof of claim.'" Id. at 1436. If the omitted debt is not of the type specified in § 523(a)(2), (a)(4), or (a)(6), the creditor has not been deprived of the right to file a timely complaint to determine dischargeability, and § 523(a)(3)(B) is not implicated either. Since neither of the events specified in § 523(a)(3) has occurred — that is, the omitted creditor has not been deprived either of the right to file a timely proof of claim or of the right to file a timely nondischargeability complaint — and since the plain language of the statute requires that the creditor have been deprived of at least one of those rights in order for the debt to be excepted from discharge, it necessarily follows that the omitted debt has been discharged. By contrast, if the omitted debt is of the type specified in § 523(a)(2), (a)(4), or (a)(6), then adding it to the schedules after the deadline for filing a nondischargeability complaint has expired cannot make the debt dischargeable, since under the plain language of § 523(a)(3)(B) such debts are excepted from discharge. Id. at 1437. Additionally, the debtor, by failing to list the creditor in a timely manner, forfeits the protection of § 523(c), Bankruptcy Code, and F.R.Bankr.P. 4007(c) which permit only the Bankruptcy Court to determine if the debt falls within the ambit of § 523(a)(2), (a)(4), or (a)(6) and imposes a strict deadline for filing such complaints. Id. at 1441.
This court is aware that many collection attorneys (and perhaps even a few state court judges) erroneously believe that a debt not listed on a debtor's schedules is per se excepted from the debtor's discharge, and that the best evidence the debt was discharged is a copy of the discharge order and the debtor's schedules listing the debt. Primarily as a pragmatic response to such creditor misunderstanding, this district several years ago adopted a practice of permitting a debtor to file amended schedules in a closed no-asset case without filing a formal motion to reopen the case if the debtor first files an affidavit certifying (1) that the creditor to be added was given 30 days notice of the intended amendment and did not file an objection to said amendment; (2) that the debtor did not intentionally omit the creditor from the original schedules; and (3) that the debtor did not intend to hinder, delay or defraud the creditor. Local Bankr. Rule 1009-1(C). If the creditor objects, the matter is set down for a hearing. Otherwise, the clerk simply files the amended schedules in the closed case. The existence of this procedure does not, however, change the fundamental fact that filing such schedules has no effect on the discharge of the newly-listed obligations.
B. Post-petition Assessments
With respect to that portion of the Association's claim which represents post-petition assessments, a different issue is presented. Those post-petition charges, the Association argues, are nondischargeable under the holding of the United States Court of Appeals for the Fourth Circuit in River Place East Housing Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833 (4th Cir. 1994). The holding of that case, however, was in substantial part overruled by § 309 of the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, 108 Stat. 4106 (1994), which added the following new exception to discharge:
[a debt] for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a dwelling unit that has condominium ownership or in a share of a cooperative housing corporation, but only if such fee or assessment is payable for a period during which —
(A) the debtor physically occupied a dwelling unit in the condominium or cooperative project; or
(B) the debtor rented the dwelling unit to a tenant and received payments from the tenant for such period,
but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.
11 U.S.C. § 523(a)(16). Thus, a debtor remains liable for condominium and cooperative assessments becoming due post-petition unless the debtor neither resided in, nor received rent from, the unit. This court recently had occasion to consider whether the same rule applies to assessments by homeowners associations and concluded, despite some legislative history to the contrary, that the plain language of the statute limited its applicability to condominium and cooperative assessments, and that Rosenfeld continued to apply to post-petition assessments by other types of property owner associations. Old Bridge Estates Community Assn., Inc., v. Lozada) In re Lozada, 214 B.R. 558 (Bankr. E.D. Va. 1997), aff'd 1999 WL 190279 (4th Cir. 1999) (unpublished). Unless, therefore, it were to be determined that Princeton Woods is a condominium or cooperative regime, the debtors would be liable for post-petition assessments for the period during which they remained owners of the property, even if they did not reside in it or receive rent from it.
Conclusion
In summary, the prepetition assessments are not excepted from discharge merely because the debtors did not list the claim on their schedules. Unless the Association can show that its prepetition claim falls within one of three tort-type exceptions to discharge set forth in 11 U.S.C. § 523(a)(2), (a)(4), or (a)(6), it has been discharged. Whether the post-petition assessments are excepted from discharge depends on whether Princeton Woods is a condominium or cooperative regime, and, if so, whether the debtors continued to reside in, or to receive rent from, their unit. Those issues are not appropriate for determination in the context of the present motion. See F.R.Bankr.P. 7001(6) (determination of dischargeability requires an adversary proceeding).
If the debtors are sued in state court on account of the claim, they may plead their discharge, and the state court would have jurisdiction to determine whether the debt has been discharged. Alternatively, the debtors, if sued on account of a discharged debt, may bring a motion in this court to hold the creditor in contempt of the discharge injunction. Finally, either the debtors or the Association may bring an adversary proceeding in this court to determine whether the debt has been discharged. However, the Association's motion, to the extent it seeks to prevent the amended schedules from being filed, is moot, since the mere scheduling of its claim does not result in its discharge if it is not otherwise dischargeable.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The motion to dismiss the debtors' Amended Schedule F is denied without prejudice to the right of either party to litigate the merits or dischargeability of the claim in any appropriate forum.
2. The clerk will mail a copy of this memorandum opinion and order to the parties listed below.