BANKRUPTCY CORNER
BANKRUPTCY CORNER
Notice is Fundamental to Debtor ’ s Obtaining Relief
JASON S . RIGOLI
A fundamental concept in bankruptcy is notice . As in other areas of law there are different types of notice . Actual notice is accomplished by ensuring the creditor or other interested party is included in the list of creditors and receives a copy of the relevant filing by U . S . Mail , generally . Constructive notice can be accomplished through other means , such as by publication . The failure to provide notice can have a dramatic impact on the relief a debtor actually acquires in going trough the bankruptcy process . There have been several recent opinions , from various courts , dealing with notice issues .
The Ninth Circuit Court of Appeals issued an opinion dealing with the scope of the exception to discharge under 11 U . S . C . § 523 ( a )( 3 )( A ), in Castro v . Jefferson Ave . Temecula LLC ( In re Licup ), Case No . 23- 60017 , --F . 4th-- , 2024 U . S . App . LEXIS 6386 at * 7-9 ( 9th Cir . Mar . 18 , 2024 ). Licup involved an “ asset ” case , meaning there were assets for the trustee to liquidate , administer , and distribute to creditors . Id . at * 8 . The debtors did not contend that the creditor was properly listed , nor did they contend that the creditor had actual knowledge of the bankruptcy case . Instead , the debtors argued that the creditor was only entitled to except from discharge an amount equal to the pro rata distribution the creditor would have received in the bankruptcy case . The Ninth Circuit disagreed and said “[ t ] he Bankruptcy Code states plainly , and without qualification , that a bankruptcy court ’ s order of discharge ‘ does not discharge an individual debtor from any debt ’ if the creditor was not appropriately listed . Id . at * 9 ( quoting 11 U . S . C . § 523 ( a ) ( emphasis added )).
Relying on an earlier opinion from the 9th Cir . B . A . P ., the Ninth Circuit stated :
" In order for a debt to be duly listed " under the bankruptcy rules , " the debtor must state the name and address of the creditor ." In re Fauchier , 71 B . R . 212 , 215 ( B . A . P . 9th Cir . 1987 ) ( citing Fed . R . Bankr . P . 1007 ). As the BAP held in Fauchier , this rule is grounded in basic principles of due process : In the absence of such notice , a creditor may well be deprived of her right to have her day in court . Id . To ensure that a creditor has the opportunity to vindicate her property rights , the Bankruptcy Code generally makes a debt nondischargeable if the debt is " neither listed nor scheduled under [ 11 U . S . C . § 521 ( a )( 1 )] . . . in time to permit . . . timely filing of a proof of claim , unless such creditor had notice or actual knowledge of the case in time for such timely filing ." 11 U . S . C . § 523 ( a )( 3 )( A ).
Id . at * 7-8 .
Failure to provide notice can result in a complete lack of due proceed leaving all of the work , negotiations , and other efforts of a debtor and its counsel to be unwound . As Judge Kimball noted in another recent opinion , a creditor who received no notice of the jointly administered bankruptcy case , was not bound by the order approving the Echelon settlement , the Plan , the confirmation order , or any substantive order entered in these cases other than this Order .” In re Mine Hill Anesthesia , LLC , Case No . 22- 11577-EPK , -- B . R . -- , 2024 Bankr . LEXIS 610 at * 10 ( Bankr . S . D . Fla . Mar . 12 , 2024 ) ( citing In re Spring See Valley Farms , Inc ., 863 F . 2d 832 , 834-35 ( 11th Cir . 1989 ); Dalton Dev . Project # 1 v . Unsecured Creditors Comm . ( In re Unioil ), 948 F . 2d 678 , 683-84 ( 10th Cir . 1991 ); Reliable Elec . Co . v . Olson Constr . Co ., 726 F . 2d 620 , 622-23 ( 10th Cir . 1984 )).
In other circumstances , constructive notice or “ actual knowledge ” still may not be sufficient notice to obtain the relief sought by a debtor .
In In re Boy Scouts of America , Case No . 20-10343 ( LSS ), 2024 Bankr . LEXIS 635 ( Bankr . D . Del . Mar . 11 , 2024 ), the creditor had actual knowledge of the bankruptcy case , however , the debtor provided actual notice of the bar date , the disclosure statement , the confirmation hearing , or the proposed insurance injunction thereby violating the creditor ’ s due process rights . 2024 Bankr . LEXIS at * 102-103 ( citing Fed . R . Bankr . P . 2002 ( b ) (“ requir [ ing ] notice for filing objections to and considering a disclosure statement and confirmation of a plan ”); Fed . R . Bankr . P . 3017 ( d ) (“ requir [ ing ] service of the plan and disclosure statement as well as a notice of the confirmation hearing ”); Fed . R . Bankr . P . 3016 ( c ) (“ requiring a plan and disclosure statement to describe in ‘ specific and conspicuous language ( bold , italic or underlined text )’ any injunction of actions not enjoined by operation of the Bankruptcy Code .”); and Fed . R . Bankr . P . 2002 ( c )( 3 ) (“ requir [ ing ] that the notice of hearing on the confirmation of a plan containing such an injunction ‘( A ) include in conspicuous language ( bold , italic , or underlined text ) a statement that the plan proposes an injunction ; ( B ) describe briefly the nature of the injunction ; and ( C ) identify the entities that would be subject to the injunction .’”)).
Conclusion
Notice is crucial in bankruptcy cases ; without it the Debtor may walk away with an empty victory and no relief .
This article was submitted by Jason S . Rigoli , Esq ., Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
PBCBA BAR BULLETIN 9