10th Circuit BAP Says Amending Schedules in a Reopened Case is not Subject to Excusable Neglect Test

Posted by NACBA - February 6, 2019

The Bankruptcy Appellate Panel for the 10th Circuit recently addressed a thorny issue about amending schedules in reopened cases. See In re Dollman, BAP No. NM-18-030(10th Cir. B.A.P. February 5, 2019). The question is whether a debtor in a reopened case seeking to amend schedules must first move for an extension of time pursuant to Fed.R.Bankr.P. 9006, and demonstrate excusable neglect.

In Dollman and the consolidated companion case In re Mendoza, both debtors unknowingly failed to disclose personal injury claims in their schedules. Both cases received a chapter 7 discharge. Both debtors reopened their cases to amend their schedules and claim exemptions in the settlements. In both cases the chapter 7 trustee objected to the amended schedules asserting that the debtors must show excusable neglect under Fed.R.Bankr.P. 9006(b) before they could exercise their rights to amend under Fed.R.Bankr.P. 1009(a). The bankruptcy courts sustained those objections on the basis that neither of them could show excusable neglect for failing to amend schedules prior to the closing of their cases.

Fed.R.Bankr.P. 1009(a) states

(a) General Right To Amend. A voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. The debtor shall give notice of the amendment to the trustee and to any entity affected thereby. On motion of a party in interest, after notice and a hearing, the court may order any voluntary petition, list, schedule, or statement to be amended and the clerk shall give notice of the amendment to entities designated by the court. (Emphasis added.)

Fed.R.Bankr.P. 9006(b)(1) states

In General. Except as provided in paragraphs (2) and (3) of this subdivision, when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect. (Emphasis added.)

The BAP focused on the issue “whether Rule 1009(a)’s “any time before the case is closed” language creates a “specified period” during which an act must be done.” If it does, then Rule 9006 applies and debtors must show excusable neglect. If it doesn’t, then amendment may occur as a matter of course while the case is open. In re Dollman, BAP No. NM-18-030, 11 (10th Cir. B.A.P. February 5, 2019).

The BAP concluded that the phrase “any time before the case is closed” is not a “specified period.” The BAP started with application of the plain meaning analysis. The language “any time before the case is closed” references an indeterminate timeframe because it is impossible to determine the date a case will close.

The BAP also concluded that reopening a bankruptcy case under 11 U.S.C. § 350(b) is a purely administrative task and that the bankruptcy court has a duty to reopen a case whenever there is prima facie proof that a case is not fully administered. Since reopening is “…’purely administrative’ Rule 1009(a)’s language does not impose a substantive limitation on the debtors’ ability to amend their schedules…A reopening renders a case open.” Id. at 13. Rule 1009(a) contains no distinction between an original case and a reopened case nor does the rule require schedules be amended prior to the first closing of the case. Id.

Finally, the BAP held that their interpretation best met the goal of fitting, if possible, all parts of the bankruptcy rules “into an harmonious whole.” Id. at 14-15. Imposing the excusable neglect requirements of Rule 9006(b) to Rule 1009(a) effectively shifted the burden of proving an exemption to the debtors. This is contrary to Fed.R.Bankr.P. 4003(c) which provides “the objecting party has the burden of proving that the exemptions are not properly claimed.”

The BAP concluded that “Simply put, Rule 9006(b)(1) does not apply to Rule 1009(a)…” Id. at 15.

It is worthy to note that the attorney representing the Dollmans is Ms. Deborah M. DeMack, a NACBA member. Both Ms. DeMack and Billy Brewer presented a NACBA webinar on this topic on January 24, 2019. You can find a great discussion of this case, the legal issues involved and how to argue this issue by purchasing the webinar at https://www.nacba.org/past-webinars/. Look for “Invoking and Asserting Exemptions in Reopened Cases.”

Practice Pointers:

• Rule 1009(a) doesn’t contain a specific time period to amend schedules so Rule 9006(b) should not apply.
• Always reopen and amend schedules to list omitted assets and exemptions.
• If there are issues in your case please reach out to Tara Twomey at www.NCBRC.org for assistance. You will find briefs and wisdom to assist your argument.

A copy of the opinion is here:  Dollman Appeal — 10th Cir BAP decision


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