1The court sets out in this memorandum opinion and order its

findings of fact and conclusions of law. See Fed. R. Civ. P.

52(a).

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

UNITED STATES OF AMERICA, §

 §

Plaintiff, §

 § Civil Action No. 3:03-CV-2321-D

VS. §

 §

CHARLES I. WILLIAMS, §

 §

Defendant. §

MEMORANDUM OPINION

In this suit by plaintiff United States of America (“the

government”) against defendant Charles I. Williams, D.D.S. (“Dr.

Williams”) to recover on a debt, the question presented is whether

Dr. Williams proved the affirmative defense that his liability to

the United States Department of Agriculture (“USDA”) was discharged

in bankruptcy. The parties tried this case to the court in a bench

trial. For the reasons that follow,1 the court finds and concludes

that Dr. Williams proved that his liability to USDA was discharged.

Accordingly, the court dismisses with prejudice the government’s

action against him.

I

The government sues Dr. Williams under the Federal Debt

Collection Procedures Act, 28 U.S.C. § 3001 et seq., and the common

law, contending he is liable for $224,315.93 plus interest accrued

after June 1, 2005 for a debt arising out of his participation as

 

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2

He also signed as “Attorney in Fact” for another partner.

See, e.g., GX 2.

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a general partner in Hillside Apartments Partnership

(“Partnership”). On October 22, 1975 the Partnership executed a

promissory note, loan agreement, security agreement, and deed of

trust with the Farmers Home Administration (“FmHA”) of USDA for a

loan in the amount of $327,500. The proceeds of the loan were used

to build the Hillside Apartments (“Hillside”), an apartment complex

located in Mexia, Texas. The Partnership secured the loan under

the Rural Development Housing Loan Program of FmHA (now Rural

Housing Service (“RHS”)). Dr. Williams signed each loan document

as a partner of the Partnership.2 He was at the time a resident of

Mexia. He moved to the Dallas metroplex in 1977 and does not

believe he has seen Hillside since. Dr. Williams was not involved

in the day-to-day management of the property.

In the spring of 1987 Dr. Williams was involved in real estate

ventures in the Dallas area that were going badly and necessitated

that he file for bankruptcy. The Partnership debt to USDA,

however, was fully secured by the deed of trust on Hillside, and

the loan was not in default. Dr. Williams also had a substance

abuse problem with prescription medications for which he was

treated as a rehabilitation inpatient during a four-week period in

April. During this period he had very little contact with the

 

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3

Dr. Williams’ counsel later advised him that he had a

conflict, and he withdrew. That attorney is now deceased. Another

attorney (the one who represented him during this trial) replaced

him.

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outside world, including with his bankruptcy counsel.3 He

delegated to his secretary and office staff the responsibility of

providing information to his counsel concerning the identity of his

creditors and his assets.

On May 20, 1987 Dr. Williams and his wife filed a chapter 7

petition. None of the original or amended schedules listed USDA,

FmHA, or RHS as a creditor, and none of these entities received

notice of the bankruptcy. The Partnership was, however, listed as

an asset. Dr. Williams and his wife filed an Amended Schedule A-3

in November 1987 that added a substantial number of creditors to

those listed originally. During 1987, when he was dealing with his

counsel and the bankruptcy trustee, the subject of the Hillside

debt never came up. Dr. Williams did not intentionally omit the

Hillside debt from his schedules. His failure to list the debt was

a mistake, and he had nothing to gain from not listing the debt.

Dr. Williams’ bankruptcy case was treated as a no-asset case,

and on November 20, 1987 Dr. Williams and his wife received a

discharge. The estate was closed on April 27, 1992.

In 1997 USDA notified Dr. Williams in a series of three

servicing letters that the Partnership needed to take corrective

actions or the debt would be accelerated. Dr. Williams responded

 

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by letter that he had relinquished his Partnership interest in

1987. He did not explicitly mention his bankruptcy. USDA never

released Dr. Williams from his obligations under the documents that

the Partnership executed to obtain the Hillside loan.

In December 1997 the debt was accelerated, and in August 1998

USDA purchased at foreclosure the real property that secured the

note. After crediting the proceeds of the sale against the

Partnership debt, a deficiency of $144,183.17 remained. The

government asserts that Dr. Williams’ indebtedness was $224,315.93

as of June 1, 2005 and is accruing daily interest of $32.54. USDA

demanded payment from Dr. Williams to satisfy the deficiency in

accordance with his personal liability for the debts and the

Partnership obligations. Although the evidence shows that Dr.

Williams is presently able to pay the deficiency, he has not done

so, contending that his personal liability for the debts of the

Partnership was discharged in bankruptcy. 

II

Because Dr. Williams relies on the affirmative defense of

discharge in bankruptcy, he bears the burden of proof. See, e.g.,

United States v. Union Scrap Iron & Metal, 123 B.R. 831, 835 n.4

(D. Minn. 1990) (citing Fed. R. Civ. P. 8(c)). This case presents

two controlling issues: (1) Did USDA have a “claim” under the

Bankruptcy Code against Dr. Williams before he filed for bankruptcy

in 1987? (2) If so, did his failure to schedule USDA as a creditor

 

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4

At trial, Dr. Williams sought by amendment to raise the issue

that USDA is an oversecured creditor and there is no deficiency.

This issue was not included in the pretrial order, and the court

declines to consider it.

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preclude discharge of the claim?4

III

The court first considers whether USDA had a claim under the

Bankruptcy Code against Dr. Williams before he filed for

bankruptcy. 

A

Dr. Williams contends that his personal liability for the

debts of the Partnership was discharged by his bankruptcy despite

the fact that he never scheduled USDA as a creditor. He argues

that USDA had an unmatured, contingent claim that arose before he

filed his bankruptcy petition. The government posits that Dr.

Williams did not have a personal debt to USDA in 1987. It reasons

that there was no enforceable claim against either the Partnership

or Dr. Williams because the Partnership was performing in

accordance with its financial and regulatory obligations. The

government contends that it was only when the Partnership defaulted

on the loan in 1997 that an enforceable claim arose. Under its

interpretation of the Bankruptcy Code and Texas state law, there

was no enforceable claim on May 20, 1987, the petition date,

because there was no right of payment. The government maintains

that all of the elements of USDA’s claim against Dr. Williams or

 

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the Partnership did not arise until December 1997, when the

Partnership defaulted on the loan. Therefore, any right to payment

arose post-petition, and Dr. Williams is still personally liable

for the deficiency resulting from USDA’s foreclosure on Hillside in

1998.

B

“Except as provided in section 523 of this title, a discharge

under subsection (a) of this section discharges the debtor from all

debts that arose before the date of the order for relief under this

chapter . . . whether or not a proof of claim based on any such

debt or liability is filed. . . .” 11 U.S.C. § 727(b). A “debt”

is defined as “liability on a claim.” 11 U.S.C. § 101(12). The

definition of a “claim” includes a “right to payment, whether or

not such right is reduced to judgment, liquidated, unliquidated,

fixed, contingent, matured, unmatured, disputed, undisputed, legal,

equitable, secured, or unsecured[.]” 11 U.S.C. § 101(5)(A). “A

claim is contingent as to liability if the debtor’s legal duty to

pay does not come into existence until triggered by the occurrence

of a future event and such future occurrence was within the actual

or presumed contemplation of the parties at the time the original

relationship of the parties was created.” In re All Media Props.,

Inc., 5 B.R. 126, 133 (Bankr. S.D. Tex. 1980), aff’d on basis of

bankruptcy court opinion, 646 F.2d 193 (5th Cir. Unit A May 1981)

(per curiam); see also In re Ford, 967 F.2d 1047, 1051 (5th Cir.

 

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1992). Congress intended the term “claim” to be read broadly so

that “all legal obligations of the debtor, no matter how remote or

contingent[,] will be able to be dealt with in the bankruptcy

case.” In re Nat’l Gypsum Co., 139 B.R. 397, 405 (N.D. Tex. 1992)

(Sanders, C.J.) (quoting H.R. Rep. No. 595, at 22 (1977), reprinted

in 1978 U.S.C.C.A.N. 5787, 5808)). Courts have accordingly

interpreted the term “claim” expansively. Id. (citing Ohio v.

Kovacs, 469 U.S. 274, 279 (1985) (“[I]t is apparent that Congress

desired a broad definition of a ‘claim’[.]”)).

Whether a claim exists depends on the interests created by

non-bankruptcy substantive law. Id. “A claim exists only if

before filing of the bankruptcy petition, the relationship between

the debtor and the creditor contained all the elements necessary to

give rise to a legal obligation——‘a right to payment’——under the

relevant non-bankruptcy law.” Id.; see also Carrieri v. Jobs.com,

Inc., 393 F.3d 508, 524 & 525 n.17 (5th Cir. 2004) (holding that

“[t]he touchstone of any ‘claim’ is that there is an ‘enforceable

obligation’ of the debtor or an enforceable ‘right to payment’ from

the debtor[,]” and that “a ‘right to payment’ . . . is established

by demonstrating ‘a legal entitlement to payments of money from the

debtor at specified intervals [or a specified time or event].’”)

(brackets in original) (citing Johnson v. Home State Bank, 501 U.S.

78, 83 (1991), and quoting In re Sid Bernstein, Ltd., 1996 WL

183375, at *7 (Bankr. E.D. Pa. Mar. 19, 1996)). A creditor “need

 

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not have a cause of action that is ripe for suit outside of

bankruptcy in order for it to have a pre-petition claim for

purposes of the Code.” Nat’l Gypsum, 139 B.R. at 405. 

Although “non-bankruptcy law governs the existence of a claim

under the Code, it is not dispositive of the time at which a claim

arises under the Code.” Id.; see also In re Andrews, 239 F.3d 708,

710 n.8 (5th Cir. 2001) (“‘federal law determines when [a] claim

arises for bankruptcy purposes’”) (quoting In re Hassanally, 208

B.R. 46, 50 (Bankr. 9th Cir. 1997)). “If a right to payment

becomes vested prior to commencement of the bankruptcy case, the

claim becomes a pre-petition claim. A claim is not rendered a

post-petition claim simply by the fact that time for payment is

triggered by an event that happens after the filing of the

petition.” In re Oxford Mgmt., Inc., 4 F.3d 1329, 1335 n.7 (5th

Cir. 1993); see also Braniff Airways, Inc. v. Exxon, Co., U.S.A.,

814 F.2d 1030, 1036 (5th Cir. 1987) (“The character of a claim is

not transformed from pre-petition to postpetition simply because it

is contingent, unliquidated, or unmatured when the debtor’s

petition is filed.”) (quoting In re Morristown Lincoln-Mercury,

Inc., 42 B.R. 413, 418-19 (Bankr. E.D. Tenn. 1984)).

C

Before the date Dr. Williams filed for bankruptcy, the

Partnership was indebted to USDA on the Hillside loan. As a

general partner in the Partnership, Dr. Williams was also indebted

 

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5Although article 6132b-3.04 is a provision of the Texas

Revised Partnership Act, adopted in 1993, the Bar Committee comment

indicates that it continues the rule of § 15 of the Texas Uniform

Partnership Act, which provided “that all partners are liable

jointly and severally for all debts and obligations of the

partnership, unless the claimant agrees otherwise or other law

provides a limitation on liability.” Tex. Rev. Civ. Stat. Ann.

art. 6132b-3.04 cmt. (Vernon Supp. 2004-05).

6In closing argument, the government asserted that, assuming

there was a breach of the loan agreement in 1987, it and USDA would

have been obligated to comply with Tex. Rev. Civ. Stat. Ann. art.

6132b-3.05(d) (Vernon Supp. 2004-05), and obtain a judgment against

the Partnership. It reasons that it could not have done so,

because the Partnership was in compliance with its debt. Article

6132b-3.05(d), however, is a provision of the Texas Revised

Partnership Act, which took effect in 1993. The government has not

established that it would have faced a similar impediment in 1987,

and the Bar Committee comment to article 6132b-3.05(d) suggests

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to USDA. Under Texas law, “[i]n a general partnership, a partner

is liable for partnership debts jointly and severally with all

other partners.” U.S. Rest. Props. Operating L.P. v. Motel

Enters., Inc., 104 S.W.3d 284, 293 (Tex. App. 2003, pet. denied);

see Commons W. Office Condos, Ltd. v. Resolution Trust Corp., 5

F.3d 125, 127 (5th Cir. 1993) (Texas law); Tex. Rev. Civ. Stat.

Ann. art. 6132b-3.04 (Vernon Supp. 2004-05).5 Under the Texas

Uniform Partnership Act, which governed in 1975 and 1987, Dr.

Williams was jointly and severally liable for the Partnership debt

to USDA, and USDA had a direct action against him for enforcement

of this obligation, without the necessity that it first proceed

against the Partnership. See Foster v. Daon Corp., 713 F.2d 148,

151 (5th Cir. 1983) (applying now-repealed Texas Uniform

Partnership Act).6

 

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that it would not have. See Tex. Rev. Civ. Stat. Ann. art. 6132b3.05 cmt. (Vernon Supp. 2004-05).

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Even if Dr. Williams’ indebtedness to USDA is considered

unmatured and/or contingent before he filed for bankruptcy (because

the Partnership was not then in default), USDA still had a “claim”

against him within the meaning of § 101(5). See, e.g., In re

Loewen Group Int’l, Inc., 274 B.R. 427, 438-439 (Bankr. D. Del.

2002) (noting that § 101(5)’s definition of “claim” permits

creditor to assert claim against debtor for all amounts owed to him

as of petition date, even if such amounts are unmatured, and

holding that claimants were permitted to assert claims in an amount

equal to entire unpaid principal balance of promissory notes

pursuant to § 101(5)); In re Caldor, Inc.-NY, 240 B.R. 180, 194

(Bankr. S.D.N.Y. 1999) (holding in context of breach of contract

that right to payment need not be presently enforceable to qualify

as a claim under § 101(5) and that claim arose before debtor

breached contract); In re Manville Forest Prods. Corp., 225 B.R.

862, 866 (Bankr. S.D.N.Y. 1998)(“Because contingent and unmatured

rights of payment are ‘claims’ under the Code, it is possible that

a right to payment that is not yet enforceable at the time of the

filing of the petition under non-bankruptcy law, may be defined as

a claim within section 101(5)(A) of the Code.”).

Accordingly, before the May 20, 1987 petition date, USDA had

a claim against Dr. Williams under § 101(5) of the Code that was

 

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dischargeable in bankruptcy.

IV

The court next addresses whether Dr. Williams’ failure to

schedule USDA as a creditor precludes discharge of the claim.

A

In a chapter 7 bankruptcy proceeding, subject to certain

exceptions, a debtor is discharged from all his debts arising prior

to the date of his order for relief. See 11 U.S.C. § 727(b). One

exception disallows the discharge of debts the debtor failed to

list or schedule. See 11 U.S.C. § 523(a)(3). Robinson v. Mann,

339 F.2d 547 (5th Cir. 1964), sets out three factors to “consider

in determining whether a debtor’s failure to list a creditor will

prevent discharge of the unscheduled debt.” In re Stone, 10 F.3d

285, 290 (5th Cir. 1994). The court examines “1) the reasons the

debtor failed to list the creditor, 2) the amount of disruption

which would likely occur, and 3) any prejudice suffered by the

listed creditors and the unlisted creditor in question.” Id.; In

re Faden, 96 F.3d 792, 796 (5th Cir. 1996) (same). Dr. Williams

bears the burden of proving under these factors that his debt

should be discharged despite his failure to list USDA as a

creditor.

 

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B

In applying the first factor, “a court should not discharge a

debt under section 523(a)(3) if the debtor’s failure to schedule

that debt was due to intentional design, fraud, or improper

motive.” Stone, 10 F.3d at 291. “If the failure is attributable

solely to negligence or inadvertence, however, equity points toward

discharge of the debt.” Id. “[A] deficiency under [the] first

factor alone permits a court in the exercise of its sound

discretion to deny relief.” Faden, 96 F.3d at 797 (upholding a

bankruptcy court’s decision not to discharge a debt because, “even

absent prejudice, equitable action should not be taken in cases

where the debtor’s failure to properly schedule a creditor is a

result of more than ‘mere negligence or inadvertence’”). 

Dr. Williams testified credibly that he did not intentionally

omit the Hillside debt from his schedules and that his failure to

list the debt was a mistake. The evidence concerning his personal

problems, the delegation of responsibility to his staff for

providing information to his bankruptcy counsel, his lack of

contact with Hillside, the nature and extent of the disclosures he

made in his original and amended schedules, and the lack of any

obvious gain from failing to list USDA as a creditor (compared with

the gain to be derived from unmistakably discharging the debt)

corroborates his testimony. Moreover, the fact that he may only

have omitted one creditor from the list tends to support the

 

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7

Cf. In re Smith, 21 F.3d 660, 664 (5th Cir. 1994)(holding

that debt was not dischargeable where, “[c]oupled with the fact

that the debtors apparently failed properly to schedule a number of

other creditors for several years, their error with regard to [this

creditor could] hardly be termed mere negligence or

inadvertence.”). 

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finding that the omission was a mistake.7 Thus resolution of the

first factor weighs in favor of an equitable discharge of Dr.

Williams’ debt.

C

“The second factor focuses on undue disruption to courts’

dockets.” Stone, 10 F.3d at 291. In Stone the court found that,

while some disruption may exist in “allowing debtors to amend their

schedules and creditors to submit proofs of claims outside the Rule

3002(c) time period, such disruption is not so inordinate as to tip

the scales against discharging the debt.” Id.; see also In re

Madaj, 149 F.3d 467, 472 (6th Cir. 1998) (holding that reopening

chapter 7 no-asset case to schedule omitted, dischargeable debt had

no effect on bankruptcy proceedings). In American Chiropractic

Clinic-North Dallas, P. C. v. Rodriguez, 2002 WL 1782376 (N. D.

Tex. Aug. 1, 2002) (Solis, J.), the court held that, because the

case was a no-asset proceeding, “creditors were advised not to file

proofs of claim” and there could be no administrative disruption.

Id. at *4.

In the present case, there is no indication that there will be

a disruption to court dockets. This is likely because there is no

 

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suggestion that Dr. Williams will attempt to reopen his bankruptcy.

He intends to do no more than rely on the affirmative defense of

discharge in bankruptcy to avoid liability to the government in

this lawsuit. This factor favors discharging Dr. Williams’ debt.

See Stone, 10 F.3d at 291 (holding that second factor favored

discharge where there was no indication that discharge could or

would unduly disrupt the courts).

D

“Without question, the third factor, which focu[s]es on

prejudice to the creditors——in conjunction with the first

factor——is the most critical. Creditors are prejudiced only if

their rights to receive their share of dividends and obtain

dischargeability determinations are compromised.” Stone, 10 F.3d

at 291 (footnote omitted) (citing cases). In Stone the court found

that “[b]ecause this is a no-asset case no creditor will receive

any dividends,” and “the [creditors’] rights to participate in

dividends would not be any different had they been listed first on

the [debtors’] schedules.” Id. at 291-92 (discharging the debts);

see also Am. Chiropractic Clinic, 2002 WL 1782376, at *4 (holding

creditor was not prejudiced because “this was a no-asset case”). 

The court holds that Dr. Williams has proved that the

government was not prejudiced by his failure to list the USDA debt.

Even if USDA had been notified of the bankruptcy, Dr. Williams’

indebtedness would have been discharged, and USDA would have

 

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8

The court need not decide how USDA would have been treated in

the bankruptcy as a secured creditor had it participated. There is

no dispute that, if USDA had a “claim” under the Code, Dr.

Williams’ personal indebtedness was discharged, and that it would

have received nothing from him personally. Accordingly, Dr.

Williams has established that USDA was not prejudiced. 

9The government referred during closing argument to prejudice

in the form of an inability to address the viability of the

Partnership itself. The court is not persuaded that this

circumstance undercuts Dr. Williams’ proof that USDA was not

prejudiced in the case of this no-asset bankruptcy.

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received nothing from him personally.8 Thus the court finds that

USDA did not suffer prejudice from its lack of notice. See Am.

Chiropractic Clinic, 2002 WL 1782376, at *4.9 

* * *

USDA had an unmatured, contingent claim against Dr. Williams

at the time he filed for bankruptcy. After applying the three

factors to determine whether Dr. Williams’ debt was discharged

despite his failure to list USDA as a creditor in his bankruptcy,

the court finds that § 523(a)(3) is inapplicable. Dr. Williams

inadvertently omitted USDA from his list of creditors, no court’s

docket will be unduly disrupted by allowing Dr. Williams to

discharge his debt, and USDA did not suffer prejudice by the

discharge of the debt. Because Dr. Williams proved that his debt

 

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to USDA was discharged in bankruptcy, the government is not

entitled to recover relief in this case, and this action is

dismissed with prejudice by judgment filed today.

August 3, 2005.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE

 

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