Can university collect debt if not listed in bankruptcy?

Question

In Texas, a student I know filed for Chapter 7 bankruptcy in May, and the case was closed as a discharged non-asset in September. During this period, the student withdrew early from classes, resulting in a portion of the Title IV funds being returned, leading to a debt of $4,321 owed to the university for the refunded amount. The university was unaware of the bankruptcy filing.

In April of the following year, a collection agency representing the university contacted the student, who informed them about the bankruptcy. The university later confirmed it was not listed as a creditor in the bankruptcy proceedings. The collection agency sent a validation letter and followed up with a phone call.

Given these circumstances, does the university need to file a proof of claim with the court, or can it continue to pursue collection of the debt?

Broocks "Mack" Wilson · Answer

Generally speaking, even debts owed to creditors that do not receive notice are discharged in no asset cases. 
 
The answer to your specific question will likely depend on the timing of when the debt arose.  If the student withdrew after she filed her chapter 7 petition, there is a possibility that the debt was not discharged since it arose "post" filing.  11 U.S.C. § 727(b) provides that the discharge is for all debts that arose before the "order for relief" (in chapter 7 cases, the order for relief is usually the filing of a voluntary chapter 7 petition).  So debts that arise post-filing are usually not discharged.

James L. Arrasmith · Answer

I’m really sorry the student is facing this—it’s stressful enough navigating bankruptcy without added confusion afterward. In a Chapter 7 no-asset case, creditors typically don't need to file a proof of claim unless the trustee finds assets to distribute. More importantly, debts that existed before the bankruptcy filing are usually discharged, even if the creditor wasn’t listed, as long as the omission wasn’t intentional and the case was a no-asset discharge. 
 
The key here is whether the debt to the university qualifies as a dischargeable debt. If it’s not considered a type of nondischargeable student loan under Section 523(a)(8) of the Bankruptcy Code, and it was incurred before the bankruptcy filing, it may have been discharged—even if the university didn’t get notice. Since the university didn’t file anything with the court, and the case is already closed with a discharge entered, they may not have legal grounds to continue collections if the debt falls under the discharge. 
 
The student should consider sending the collection agency a copy of the discharge paperwork and a letter explaining that the debt predates the bankruptcy. If collection efforts continue, it may be worth seeking help to file a motion to reopen the bankruptcy case and add the university if needed. Everyone deserves a clean slate after bankruptcy, and no one should be hounded for something that may no longer be legally owed.

Q: Can university collect debt if not listed in bankruptcy?