Twice yesterday new bankruptcy practitioners asked about how to deal with debts or assets not listed in the debtor’s original schedules.
The answer in either situation is amend the schedules. As soon as you know that the schedules are not accurate on a meaningful issue, make them accurate.
Creditor left out
For an omitted creditor, you want to add them to the schedules and give notice to them of the pendancy of the bankruptcy.
I usually serve a copy of the 341 meeting notice on them and prepare and file a certificate of service. The court generally will include the added creditor on the list for any future notices but won’t send a separate copy of prior notices to the newcomer.
For an omitted asset, amend the schedules to list as much as you know about the asset and consider whether the asset may be claimed exempt.
Assets not scheduled are not abandoned at the close of the case, and if others discover the excluded asset before you’ve made disclosure, your client may be barred from exempting the asset, at best, and at worst could face loss of discharge.
The most common omitted asset is an unfiled legal claim. Sometimes the debtor doesn’t recognize legal claims as “assets”; other times, the debtor is ignorant of the very existence of the right until an attorney is involved.
Either way, you want to make disclosure so that the client is not judicially estopped from asserting the claim if the trustee does not.
Other assets frequently omitted are inheritances that haven’t been distributed and tax refunds that haven’t been received. It’s the right to the asset that is important here, not current possession.
Getting the complete picture
The problem of omissions can be addressed when you first meet with the client about the information needed for the schedules.
In the asset section, our client questionnaire says in bold capitals: LIST IT OR LOSE IT.
You can sometimes spot omitted assets when you see budget items for insurance or maintenance on property you don’t see listed. Tax returns, with interest income for bank accounts sometimes turns up more accounts than the client listed.
Add your critical scrutiny to the info the client provides. You’re the one who knows the consequences of inattention.