## Facts

- Michael K. Madaj and Theresa A. Madaj (Debtors) borrowed a substantial sum from Wilbert F. Zirnhelt and Margaret R. Zirnhelt (Creditors), promising repayment from anticipated insurance proceeds.
- The Debtors did not repay the loan and filed a Chapter 7 bankruptcy petition without listing the Creditors or the debt in their schedules.
- The Chapter 7 case was administered as a no-asset case; the Debtors received a discharge under 11 U.S.C. § 727, and the case was closed.
- Unaware of the bankruptcy, the Creditors sued in state court and obtained a judgment for the unpaid loan balance.
- After the state-court judgment, the Debtors moved to reopen the bankruptcy case to add the omitted debt, asserting the omission was inadvertent.
- The Creditors objected, contending the omission was intentional and fraudulent.
- The parties agreed the debt would have been dischargeable under 11 U.S.C. § 523 if timely scheduled and that, because the case was no-asset, listing the debt would not have resulted in any distribution to the Creditors.

## Issues

1. In a Chapter 7 no-asset case, does failure to schedule an otherwise dischargeable debt make that debt nondischargeable under 11 U.S.C. § 523(a)(3)(A)?
2. Does reopening a closed no-asset Chapter 7 case to add an omitted creditor affect the dischargeability of the omitted debt?

## Decision

- The Sixth Circuit affirmed the district court, which had affirmed the bankruptcy court.
- The court held the debt to the Creditors was discharged despite not being scheduled.
- The court agreed that reopening the case to add the omitted creditor would not affect dischargeability in a no-asset case and upheld denial of the motion to reopen.

## Legal Principles

- In a Chapter 7 no-asset case where no claims bar date is set, an otherwise dischargeable debt is discharged under § 727 even if omitted from the schedules, unless § 523(a)(3) applies.
- Section 523(a)(3)(A) turns on whether the creditor lacked notice “in time” to permit timely filing of a proof of claim; in a no-asset case, the absence of a bar date means the statutory “timely filing” condition is not triggered by omission alone.
- Reopening a no-asset Chapter 7 case solely to amend schedules to add an omitted dischargeable debt does not change dischargeability and may be denied as having no legal effect on the discharge.
- Alleged intent to omit a creditor does not, by itself, convert an otherwise dischargeable debt into a nondischargeable debt under § 523(a)(3)(A); nondischargeability must rest on an applicable statutory ground.

## Conclusion

The court held that, in a Chapter 7 no-asset case, an omitted debt that is otherwise dischargeable remains discharged because § 523(a)(3)(A) is not implicated without a claims-filing deadline, and reopening the case to list the creditor does not alter that result.


In re Madaj, 149 F.3d 467 (6th Cir. 1998)