In bankruptcy laws, an unscheduled debt is said to be when a debtor fails to mention a debt in the schedules filed in court. Since the debt is not listed or scheduled, it becomes an unscheduled debt.
Because it is unscheduled, such debts do not have any assurance of a repayment or reorganization unlike with an unavoidable lien such as a mortgage. Though unscheduled debts are considered as non-dischargeable debts, there are instances where they can be depending on specific requirements as well as the bankruptcy chapter in which a case is filed.
However, the Bankruptcy Code clearly states that it is a must for debtors to schedule debts and failing to do so will only result to a case dismissal.
What happens when you fail to schedule a debt?
Unscheduled debts are always considered as non-dischargeable debts. So what happens when you fail to schedule a debt? Depending on the nature of the unscheduled debts and the chapter under which you have it filed, there five likely scenarios that you may encounter when you forget to list a creditor upon filing your bankruptcy.
First, unscheduled debts are always considered as non-dischargeable debts. In fact, these are debts which are exempted from being discharge in any bankruptcy court.
Second, creditors cannot file proofs of claim for unscheduled debts. Meaning to say, they cannot lay claim to receive any regular payments which might be imposed from the debt repayment or reorganization plan.
Third, scheduled creditors can easily challenge discharged debts and if successful, might provide it as non-dischargeable. Unscheduled creditors do not have the same privilege since cannot file a claim and so a debt discharge objection is also eliminated in the process.
Fourth, though unscheduled debts are normally not discharged, the no-asset exception clause under Chapter 7 bankruptcy states that such a debt can be considered as dischargeable or would have been if a proper schedule has been put in place.
Fifth, since unscheduled creditors have no claim over their debtors, they might choose to take relief from the automatic stay until the bankruptcy case ends or take legal action in a state court.
The Due Process of Discharging an Unscheduled Debt
Problems often occur when people are too busy filing for bankruptcy. With regards to bankruptcy, discharged debts offer more relief than a repayment plan would in certain circumstances. However, you can easily be denied a discharge by committing the fatal mistake of not properly scheduling a debt your debts in court.
According to the Bankruptcy Code, debts which were not scheduled in time to permit a timely filing of a proof of claim cannot be dischargedunless the creditor had actual knowledge or notice of the case at the time of filing.
If a creditor has actual knowledge of the bankruptcy case before a debt discharge is filed, the debtor may be entitled to a determination of whether or not a debt is dischargeable. However, failing to give a creditor notice of the bankruptcy case before the deadline of filing for debt discharges will have the course reevaluate your reasons why the debt was unscheduled.