1999 #19, Decker, 7-12-99

In re: DAVID K. DECKER, Bankr. No. 98-41053; Chapter 7

The matter before the Court is Debtor's motion to discharge judgments, creditor Kevin Colbert's objection, and Debtor's response. This is a core matter under 28 U.S.C. § 157(b)(2). This letter decision and accompanying order shall constitute the Court's findings and conclusions under F.R.Bankr.P. 7052. As set forth below, the Court concludes that the motion must be granted unless Colbert has grounds to bring a non dischargeability action under §§ 523(a)(2), (4), or (6).

Summary. Debtor filed a Chapter 7 petition and schedules on December 14, 1998 and a discharge of debts was entered March 24, 1999. The case trustee did not find any non exempt assets to liquidate and the case was closed on April 1, 1999 without any distribution to creditors. Kevin Colbert was not scheduled as a creditor.

On June 21, 1999, Debtor filed a motion to discharge judgments under S.D.C.L. § 15-16-20 and Local Bankr. R. 4072-1. Included in the judgments to be discharged was a default judgment obtained by Colbert in January, 1999 for $3,311.27, which was after Debtor filed bankruptcy but before the case was closed.

On July 2, 1999, Colbert filed an objection to Debtor's motion to discharge judgments. He objected on the grounds that he never received notice of the bankruptcy filing and that he was not scheduled as a creditor.

Debtor filed a response on July 8, 1999. He reviewed the facts and applicable law.

Discussion. Several related issues are presented. Section 523(a)(3)(A) of the bankruptcy code essentially provides that an unscheduled debt is not discharged unless (1) the trustee had no assets to distribute and (2) the unscheduled debt was not subject to a non dischargeability complaint under § 523(a)(2), (4), or (6) and the creditor did not have actual notice of the case before the deadline to file such a complaint expired. Whether Colbert had actual notice in time to file a fraud-based dischargeability complaint is disputed. However, Colbert's response does not indicate that he has any grounds on which to bring a fraud-based non dischargeability complaint under § 523(a)(2), (4), or (6). Therefore, it appears from the present record that the debt was discharged under § 523(a)(3) and so too may the judgment be discharged.

Colbert's small claims action did not have to be final before Debtor's petition was filed in order to render Colbert's claim discharged. A discharge is very broad. It covers debts that "arose" before the petition was filed. 11 U.S.C. § 727(b). "Debt" is defined broadly. It covers any "liability on a claim." 11 U.S.C. § 101(12). And a "claim" is broadly defined as any "right to payment, whether or not such right is reduced to judgment, liquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured[.]" 11 U.S.C. § 101(5)(A). Accordingly, Colbert's claim was discharged although the state court small claims action had not been completed pre-petition.

Colbert's judgment may also be rendered void as an act in violation of the automatic stay, 11 U.S.C. 362(a), or as a post-petition transfer of property of the bankruptcy estate. 11 U.S.C. § 549(a). Litigation under either section, however, would not produce a different result. Debtor contributed to the violation of the stay by not scheduling Colbert as a creditor. Thus no damages would be warranted for Colbert's violation of the automatic stay. If the trustee were to avoid the judgment under § 549(a), it would not produce any assets for the estate.

Generally, a Chapter 7 debtor should not move to discharge a judgment that has not been scheduled. The better procedure is for the debtor to commence a non dischargeability complaint under § 523(a)(3) to get both the debt and attending judgment declared discharged. If the creditor has a defense that his claim is non dischargeable under § 523(a)(2), (4), or (6) and that he did not have notice of the case in time to file such a complaint, that can be properly litigated through the adversary.

An adversary under § 523(a)(3) did not get filed in this case. Therefore, if Colbert believes he did not get actual notice of the case and that his claim is non dischargeable under § 523(a)(2), (4), or (6), Debtor's motion should be denied as to Colbert's judgment without prejudice. Debtor can then commence an action under § 523(a)(3) to litigate the matter. Conversely, if the facts are as stated above, Debtor's motion will be granted.

Within ten days, counsel for Colbert shall advise the Court by letter (copy to Debtor's counsel) whether Colbert has grounds to bring a non dischargeability action under § 523(a)(2), (4), or (6). An appropriate order regarding this particular judgment will then be entered.

In the interim, Debtor's counsel may submit a proposed order that discharges those judgments to which no objection was timely filed. The order, however, must exclude any judgments for child support, alimony, or other family support debts since those debts were not discharged. 11 U.S.C. § 523(a)(5). It appears one or more may have erroneously been included in Debtor's motion. Also, the proposed order should conform to the new form order at Appendix 26. Any reference to a discharge of liens must be excluded. A separate motion is required for such relief, see 11 U.S.C. § 522 and Local Bankr. R. 4003-2, and not all liens can be voided. See, e.g., In re Taylor, Bankr. No. 89-40349, slip op. (Bankr. D.S.D. March 19, 1998)(county aid lien survived the debtors' discharge), In re Hookie, Bankr. No. 97-40015, slip op. (Bankr. D.S.D. April 16, 1998)(county aid lien was void because it was obtained in violation of the automatic stay), and In re Wyly, Bankr. No. 94-10088, slip op. (Bankr. D.S.D. March 31, 1999)(general discussion about removal of liens).