Source: http://www.canb.uscourts.gov/node/597
Timestamp: 2015-03-03 12:39:16
Document Index: 491973465

Matched Legal Cases: ['§ 524', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§ 523', '§\n523', '§ 523', '§ 523', '§ 523']

Memorandum of Decision Re: Unscheduled Creditor | United States Bankruptcy Court
United States Bankruptcy Court	Northern District of California	Tuesday, March 03, 2015	Case Info
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JON STERNGOLD, No. 99-13159
Debtor Jon Sterngold, a physician, filed a Chapter 7 petition on October 15, 1999, and received
a discharge on February 15, 2000. His case was thereafter closed as a "no-asset" case with no claims
bar date and no dividend to creditors.
On September 25, 1999, just before the bankruptcy, Sterngold had performed a dermal hair
removal procedure on Donna Stafford. Stafford was not scheduled as a creditor. On September 19,
2000, Stafford filed suit against Sterngold in state court, alleging that the procedure was done so
recklessly as to amount to willful and malicious conduct and that permanent disfigurement resulted. She
also alleges that he was covered by liability insurance at the time.
Sterngold has asked the court to reopen the case so that he can amend his schedules to add
Stafford as a creditor. He mistakenly believes that this would result in a bar to further prosecution of
the state court action. Since he is mistaken, the court takes the time to explain the proper procedure to
If Sterngold was in fact covered by insurance at the time he performed the procedure on
Stafford, then she may proceed with the state court suit regardless of whether or not she is scheduled as
a creditor. As long as recovery is limited to insurance, a bankruptcy discharge does not prohibit
litigation on a discharged debt. In re Beeney, 142 B.R. 360, 362 (9th Cir. BAP 1992).
If Sterngold was not covered by insurance, or if Stafford wishes to collect from Sterngold
personally, then the issue becomes whether or not her claim has been discharged. Contrary to
Sterngold's belief, amending the schedules would not automatically bar Stafford's state court suit
because dischargeability is an open issue, and the permanent injunction of § 524(a) of the Bankruptcy
Code only applies to discharged debts. To determine if Stafford's claim is subject to the discharge,
Sterngold would have to either plead his bankruptcy discharge as an affirmative defense in state court (1)
or file a complaint to determine dischargeability in this court. (2)
Amendment of the schedules to add Stafford would be a meaningless act at this point, regardless
of whether Sterngold decided to litigate dischargeability in state court or bankruptcy court. Dischargeability is governed in both forums by § 523(a)(3)(B) of the Bankruptcy Code, which
provides that a claim based on willful and malicious conduct is not discharged if not scheduled in time
for the creditor to timely file a proof of claim and request a determination of dischargeability "unless
the creditor had notice or actual knowledge of the case in time for such timely filing and request." Since there was never a bar date for claims, that is not an issue now. However, the last day to request a
determination of dischargeability under § 523(a)(6) was February 14, 2000. Amending the schedules
will not change the fact that Stafford missed this deadline. If she missed it because she was not
scheduled as a creditor and had no actual knowledge of the case in time to file a timely request, then her
claim may be nondischargeable pursuant to § 523(a)(3)(B). (3)
The court remains mystified as to Sterngold's reading of In re Beezley, 994 F.2d 1433 (9th Cir.
1993). The holding of that case is that a motion to reopen must be denied when it would not result in
any relief. In affirming the bankruptcy court's refusal to allow a debtor to reopen his case, the Court of
Appeals there specifically noted: "After [a Chapter 7 case] has been closed, dischargeability is
unaffected by scheduling; amendment of [the debtor's] schedules would thus have been a pointless
exercise." 944 F.2d at 1434. (4)
The court notes that Stafford does not appear to have a strong case under § 523(a)(6). In Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), the Supreme Court held
that it is insufficient under § 523(a)(6) to show that the debtor acted willfully and that the injury was
negligently or recklessly inflicted; instead, it must be shown not only that the debtor acted willfully, but
also that the debtor inflicted the injury willfully and maliciously rather than recklessly or negligently. However, that issue is for the state court to decide or for this court to decide in the context of an
adversary proceeding; adjudication at this time is not proper.
To summarize and give guidance to the parties, the court will order as follows:
1. Sterngold's motion to reopen the case in order to file an amended schedule is denied.
2. Stafford's state court action may proceed unless subsequently enjoined by this court. If
Sterngold raises his bankruptcy discharge as a defense, the state court should determine if Stafford had
notice or actual knowledge of the bankruptcy in time to file a dischargeability action by February 14,
2000 and, if she did not, whether she would have prevailed, in light of Kawaauhau v. Geiger, if she had
filed a timely action.
3. After 120 days from the date of this memorandum, and upon a showing that he has provided
Stafford with complete, detailed and accurate information concerning all liability insurance he had or has
which might be a source of recovery for her damages, Sterngold may again seek to reopen his
bankruptcy solely for the purpose of filing a dischargeability action pursuant to § 523(a)(3) of the Bankruptcy Code. If Sterngold establishes that there is absolutely no insurance covering his alleged
liability to Stafford, then Sterngold may seek and the court will consider enjoining the state court action
while the issue of dischargeability is litigated here.
Dated: May 3, 2001 ___________________________
1. Since Stafford was not scheduled as a creditor, dischargeability of her claim is governed by §
523(a)(3) of the Bankruptcy Code. "Jurisdiction over [§ 523(a)(3) issues] is held concurrently by the
bankruptcy court and any appropriate nonbankruptcy forum." Advisory Committee note to FRBP
4007. 2. FRBP 4007(a) provides that a debtor or a creditor may file a complaint to obtain a
determination of the dischargeability of any debt. 3. Of course, it is not sufficient for Stafford to merely allege that her claim was nondischargeable
under § 523(a)(3)(B); she also has to prove that she would have prevailed on a § 523(a)(6) action if
she had known about the bankruptcy in time to file one. In re Lochrie (9th Cir.BAP 1987) 78 B.R.
4. Nor does anything in Beezley undo FRBP 4007(a), as Sterngold also a