IN RE SARTOR, (Bankr.E.D.Va. 1997)

STEPHEN MITCHELL, Bankruptcy Judge

Before the court is a motion and notice of hearing filed by The Unit Owner's Association of Burberry Court Condominium ("the Association") on February 3, 1997, objecting to the debtor's proposed amendment of its schedules to add the Association as a creditor. Because adding the Association's claim has no effect on its dischargeability and impairs no rights of the Association, the motion will be dismissed without prejudice.

Background

The debtors, Jamella and Tyrone Sartor, filed a voluntary petition under chapter 13 of the Bankruptcy Code in this court on September 15, 1994. A plan for the adjustment and repayment of their debts was confirmed by this court on December 20, 1994. On September 20, 1995, the case was converted from chapter 13 to chapter 7 on the debtors' motion. The debtors received a discharge on December 26, 1995, and the case was closed on December 28, 1995.

On January 21, 1997, more than a year later, the debtors presented for filing an amendment to their Schedule F ("Creditors Having Unsecured Non-Priority Claims") adding a liability, described as "Delinquent assessment fees," to the Board of Directors of the Unit Owners Association of Burberry Court Condominium in the amount of $2,470.04. The certificate of service accompanying the amendment reflects that a copy was mailed to the Association on January 20, 1997. With the amendment, the debtors filed a "Certificate for Adding Creditors to Schedules in a Closed Case" asserting that the chapter 7 case was a no-asset case, that the debtors did not intentionally omit the creditor from the schedules filed in the case, that the debtors did not intend to hinder, delay, or defraud the creditors, and that "due notice has been sent to such creditor(s), and no response has been received by the debtor(s) within such 30 day period." On February 3, 1997, the Association filed a motion and notice of hearing asserting that the claim in question represented delinquent condominium fees that accrued after the conversion of the case to chapter 7. The Association asks the court "to deny the Schedule F amendment."

The case file has been transferred to the Federal Records Center and is unavailable for review. However, the docket entries reflect that the Association filed a claim in the chapter 13 case that was allowed over the objection of the debtors.

The Association's motion also controverts the debtors' assertion that the Association had been given 30 days notice of the proposed amendment. The motion states that the first notice the Association received of the proposed amendment was on January 23, 1997. The amendment itself reflects that it was not served before January 20, 1997. Since that is also the date of the "Certificate for Adding Creditors," the statement in the latter that 30 days had elapsed without objection is probably not correct. In view of the court's disposition of the present motion, however, the court need not resolve the notice issue. The court cautions, however, that a certificate alleging notice and expiration of the notice period should not be executed or filed until after notice period has expired.

Discussion A.

The present motion raises a somewhat different issue from that which is usually presented when a debtor seeks to add a creditor in a closed chapter 7 case. Normally, it is undisputed that the creditor's claim arose pre-petition and is therefore discharged by virtue of § 727(b), Bankruptcy Code, unless it is excepted from discharge under one of the specific provisions of § 523(a), Bankruptcy Code. Where a pre-petition claim is involved and the creditor does not learn of the bankruptcy until after the debtor is discharged, the question is usually whether the exception for unlisted debts in § 523(a)(3), Bankruptcy Code, applies. That issue has been discussed extensively in a number of opinion by judges sitting in this court. In re Showalter, Va. Lawyers Weekly, Mar. 7, 1994 at 1, No. 91-13947-AB (Bankr. E.D. Va. Feb. 4, 1994) (Teel, J.); In re Walters, No. 93-10610-AB (Bankr. E.D. Va. Feb. 16, 1994) (Teel, J.); In re Woolard, 190 B.R. 70 (Bankr. E.D. Va. 1995) (Mitchell, J.); In re Carberry, 186 B.R. 401 (Bankr. E.D. Va. 1995) (Tice, J.).

(b) Except as provided in section 523 of this title, a discharge under . . . this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case, whether or not a proof of claim based on any such debt or liability is filed under section 501 of this title, and whether or not a claim based on any such debt or liability is allowed under section 502 of this title.

Essentially, the opinions all conclude that in a no-asset chapter 7 bankruptcy, a debt not listed on the debtor's schedules in time to permit the timely filing of a nondischargeability complaint is nevertheless discharged unless it is a debt of the kind specified in § 523(a)(2), (a)(4), or (a)(6) of the Bankruptcy Code or is nondischargeable under some other provision of the Bankruptcy Code. Conversely, if the debt is of the kind specified in § 523(a)(2), (a)(4), or (a)(6) or is otherwise nondischargeable, it is not discharged simply because amended schedules are filed listing the debt after the dischargeability deadline has run. As succinctly explained by Judge Teel in Walters, supra, a debtor who has failed to list a creditor in a no-asset case has several avenues of relief if pursued on account of the unscheduled debt:

Such debts include those arising from false pretenses, a false representation, actual fraud, false written financial statements, fraud or defalcation while acting in a fiduciary capacity, embezzlement, larceny, or willful and malicious injury.

The debtor is entitled to assert his discharge as a defense to any collection action by the creditor, assuming the debt is not of a nondischargeable character . . . as [of a] kind specified in 11 U.S.C. § 523(a)(2), (4) or (6) or under some other § 523(a) exception to discharge. Unless the creditor is suing on the basis that the claim is nondischargeable under some provision of 11 U.S.C. § 523(a), the suit against the debtor violates the discharge injunction. If the creditor continues to pursue the action, despite the debt's dischargeable character, the debtor may file a motion to reopen the case to prosecute a motion to hold the creditor in contempt of the discharge injunction. The debtor might also seek to reopen the case to file a complaint to determine whether the debt is nondischargeable. . . .

Slip op. at 2.

Section 523(a), Bankruptcy Code, sets forth 16 general categories of debts for which liability is not extinguished by a chapter 7 discharge. With respect to four of those categories "those set forth in §§ 523(a)(2), (a)(4), (a)(6), and (a)(15), Bankruptcy Code" only the bankruptcy court may make a determination of whether or not the debt has been discharged, and strict deadlines apply. § 523(c), Bankruptcy Code; F.R.Bankr.P. 4007(c). With respect to all other categories of nondischargeable debt, state courts have concurrent jurisdiction with the bankruptcy court to determine whether the debt has been discharged, and there is no specific time limit within which such determination must be sought.

These consist of debts arising out of false pretenses, a false representation, fraud, or a false written financial statement; fraud or defalcation while acting as a fiduciary; embezzlement; larceny; willful and malicious injury; or debts (other than alimony or child support) incurred in the course of a divorce or under a property settlement agreement.

Of course, for the issue of dischargeability to arise in the first instance, the liability in question must be one "that arose before the date of the order for relief." § 727(b), Bankruptcy Code. Put another way, a discharge does not affect a post-petition liability. Prior to the 1994 amendments to the Bankruptcy Code, the question of whether liability for condominium fees "arises" when the owner accepts and records a deed to the condominium or only incrementally as each month's fee is assessed had divided the courts. See, River Place East Housing Corp. v. Rosenfeld (In re Rosenfeld), 23 F.3d 833, 836-837 (4th Cir. 1994) (collecting cases). In Rosenfeld, the Fourth Circuit held that a debtor's liability for post-petition assessments by a housing cooperative association was not discharged, since the association's "right to payment" did not arise until the dues were assessed. In response to Rosenfeld and similar holdings, Congress amended § 523 in 1994 to provide as follows:

Bankruptcy Reform Act of 1994, Pub.L. 103-394, 108 Stat. 4106, § 309 (Oct. 22, 1994). The legislative history explains:

This section amends section 523(a) of the Bankruptcy Code to except from discharge those fees that become due to condominiums, cooperatives, or similar membership associations after the filing of a petition, but only to the extent that the fee is payable for time during which the debtor either lived in or received rent for the condominium or cooperative unit. Except to the extent that the debt is nondischargeable under this section, obligations to pay such fees would be dischargeable. See Matter of Rosteck, 899

F.2d 694 (7th Cir. 1990).
Bankruptcy Reform Act of 1994 "Section-by-Section Description, 140 Cong.Rec. H 10,764 (daily ed. Oct. 4, 1994), reprinted App. 4, Lawrence P. King, Collier on Bankruptcy, XLI-4, 38 (15th ed. 1996). Since the debtors' case was filed on September 15, 1994" approximately five weeks prior to the effective date of the Reform Act "and since the amendments made by the Reform Act, with certain exceptions not relevant here, "shall not apply with respect to cases commenced . . . before the date of [the Act]," id. § 702(b)(1), it is an interesting question whether the conversion of the debtors' case to chapter 7 after the effective date of the Reform Act makes § 523(a)(16) applicable. See, § 348, Bankruptcy Code. Fortunately, the issue is one that need not be resolved in the context of the present motion, and the court expressly makes no ruling.

§ 523. Exceptions to discharge.

(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a dwelling unit that has condominium ownership or in a share of a cooperative housing corporation, but only if such fee or assessment is payable for a period during which —

(A) the debtor physically occupied a dwelling unit in the condominium or cooperative project; or (B) the debtor rented the dwelling unit to a tenant and received payments from the tenant for such period, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order of relief in a pending or subsequent bankruptcy case.

In its motion, the Association asserts that the only assessments for which it is pursuing the debtors arose after the conversion of the case to chapter 7. Thus, the potential issue "as respects the debtors' liability for those fees" is whether they physically occupied or rented out the unit during the time period for which the fees was assessed. This is not, however, an issue that can be resolved in the context of the present motion. As noted above, a debtor's amendment of schedules in a closed case to add an omitted claim has no effect on whether the debt has been discharged. Thus, if the Association believes in good faith that its claim against the debtors is nondischargeable under § 523(a)(16), Bankruptcy Code, or that § 523(a)(16) does not apply, it may enforce its claim in state court. If the debtors plead their discharge as a defense, the state court has jurisdiction to determine whether the debt has been discharged. Alternately, the debtors may file a motion to reopen their case for the purpose of bringing a motion to hold the Association in contempt for violating the discharge injunction. Finally, either the Association or the debtors may commence an adversary proceeding in this court to obtain a determination of whether the debt has been discharged. However, a determination of dischargeability cannot be made in the context of a motion to amend the schedules. F.R.Bankr.P. 7001; In re Woolard, supra.

Under 11 U.S.C. § 524(a)(2), a discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived."

B.

The foregoing analysis is not affected by the fact that this court has adopted a procedure for filing amended schedules in a closed case. See, Local Rule 1009-1(C). The procedure was adopted subsequent to Judge Teel's decisions in Showalter and Walters, supra, holding that reopening a closed no-asset chapter 7 case for the purpose of filing amended schedules was a futile act, because the omitted debt either had been discharged or was nondischargeable, and adding it to the schedules would not change its status. In response to those and similar decisions, this court adopted an administrative procedure permitting the filing of amended schedules in closed no-asset cases without a formal motion to reopen, if the amended schedules were accompanied by a certification (1) that the creditor to be added was given 30 days notice of the intended amendment and did not file an objection to the amendment; (2) that the debtor did not intentionally omit the creditor from the original schedules; and (3) that the debtor did not intend to hinder, delay or defraud the creditor. If no objection were filed within the 30-day period, the clerk was authorized to file the amended schedules in the closed case.

As explained in Woolard, supra, however, this procedure was not adopted with the view that filing amended schedules had any legal effect on the dischargeability of the newly-added debts, but simply as a pragmatic response to the concern of many debtor's attorneys that a significant number of creditors and state court judges assumed (incorrectly) that a debt not listed on a debtor's schedules was per se excepted from the debtor's discharge, and that the best evidence the debt was discharged was a copy of the discharge order and the debtor's schedules listing the debt. Presumably, in those instances where a creditor is given notice of the intended amendment and does not file an objection, the creditor accepts the debtor's characterization of the debt as having been discharged, abandons the enforcement efforts, and the matter is laid to rest. Nevertheless, as discussed in Walters, Woolard, and Carberry, supra, simply amending the schedules in a closed no-asset case to add a previously-omitted creditor does not discharge the debt. At best, it places the affected creditor on notice that the debtor considers the debt to have been discharged. If the creditor, disagreeing with the debtor's characterization, proceeds with enforcement action, it does so at the risk that it may be held to have knowingly violated the discharge injunction.

ORDER

Since the debtors' filing of amended schedules has no effect on whether the Association's claim has been discharged, and since a determination of dischargeability may be made by this court only in the context of an adversary proceeding brought for that purpose or in the context of a motion by the debtors to hold the creditor in contempt, there is no issue properly before the court for determination. It is, accordingly,

ORDERED:

1. The motion is dismissed without prejudice to right of either party to litigate the issue of dischargeability in a state court of appropriate jurisdiction or to commence an adversary proceeding in this court to determine the dischargeability of the Association's claim.

2. The clerk shall mail a copy of this memorandum opinion and order to counsel for the debtors, counsel for the Association, and the United States Trustee.