Generally, the failure to notify an ordinary unsecured creditor of a bankruptcy does not protect the creditor, and the debt will still be discharged. The exception would be if the debtor intentionally failed to notify the creditor, who would have had protectable rights were notice to have been timely.
For example, if the creditor claims that he/she was defrauded by you into making the loan, then that is grounds for the bankruptcy court to deny discharge of the creditor's debt.
But, if there's no claim of fraud and the creditor merely wants to collect on the default, then the failure to notify of the debtor's bankruptcy will not protect the creditor's claim from discharge.
As far as the small claims action goes, the judge will have to dismiss the case as soon as the court is notified of the bankruptcy claim, and the creditor will have to take his/he complaint directly to the bankruptcy court.
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