Mere Delay without Prejudice Does Not Preclude Reopening

Posted by NCBRC - March 24, 2016

In the absence of evidence of prejudice, mere delay in moving to reopen is insufficient reason to deny the motion. In re Yonish, 15-8006 (B.A.P. 6th Cir. March 3, 2016).

In their chapter 7 petition Joseph and Leanne Yonish listed judgment liens from Discover Bank and Chase Bank. They obtained their discharge and nearly two years after the case was closed sought to reopen to avoid the liens in order to refinance the loans. The banks were given notice of the motion and did not object. Their counsel admitted that his failure to avoid the liens during the bankruptcy was error. The bankruptcy court denied the motion to reopen citing unreasonable delay in seeking to reopen and possible prejudice to lienholders.

The panel addressed whether the bankruptcy court’s refusal to reopen the case constituted an abuse of discretion and found that it did. Section 350(b) permits a court to reopen “to accord relief to the debtor, or for other cause.” Avoidance of judicial liens may be “cause” to reopen. The issue requires that the court consider the equities of each case. The bankruptcy court based its decision to deny the motion on untimeliness and the doctrine of laches. Laches looks at “(1) unreasonable delay in asserting one’s rights; and (2) a resulting prejudice to the defending party.” Laches does not rest merely on timeliness but whether during the delay “changed circumstances inequitably work to the disadvantage or prejudice of another” if the case were reopened. Here, the creditors did not object to reopening nor did they offer any evidence of changed circumstances in reliance on the closed case that would indicate prejudice if the case were reopened. The bankruptcy court therefore abused its discretion in presuming prejudice in the absence of any evidence to support it. Additionally, neither section 350(b) nor Rule 5010 impose a timeliness requirement. While timing is an important consideration, standing alone it is insufficient reason to deny a motion to reopen. “The bankruptcy court abused its discretion by presuming prejudice on the mere fact of the delay. In essence, the bankruptcy court eliminated the second element of laches, finding that delay is the equivalent of prejudice.”

Yonish 6th BAP opinion March 2016


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