Excusable Neglect Standard for Amendment in Reopened Case

Posted by NCBRC - March 26, 2018

The right to amend in the case of a bankruptcy that is closed and then reopened is neither unlimited nor foreclosed, but requires a showing of excusable neglect. In re Mendoza, No. 16-10951 (Bankr. D. N.M. Jan. 31, 2018).

Despite direct prompting, Chapter 7 co-debtor, Sandy Armijo, failed to disclose the existence of a personal injury claim for which she was receiving pre-and post-petition chiropractic treatment. After her case was closed she received a settlement of approximately $8,000 in the personal injury case and moved to reopen her bankruptcy to amend her schedules to show the income and claim it as exempt. The trustee objected to the exemption.

The court framed the issue as whether Rule 1009(a) which permits a debtor to amend “as a matter of course at any time before the case is closed,” extends that same entitlement to a debtor in a case that has been closed and reopened. The court rejected the “unduly restrictive” interpretation of the Rule in which courts have read “before the case is closed,” to mean that closure marks the last time a debtor may amend even if the case is later reopened. On the other hand, the court found the alternative view that the permissive language of Rule 1009(a) extends to reopened cases in exactly the same way it applies to the case before closure, ignored the “before the case is closed” language altogether.

Rather, the court agreed with those courts finding that initial closure marks the point at which a debtor may amend as a matter of course, but does not entirely foreclose amendments made in a reopened case upon a showing of excusable neglect. In applying the excusable neglect standard the court considered: “[1] the danger of prejudice to the nonmoving party, [2] the length of the delay and its potential impact on judicial proceedings, [3] the reason for the delay, including whether it was within the reasonable control of the movant, and [4] whether the movant acted in good faith.” The court weighed a debtor’s fault in failing to amend before closure more heavily than other considerations.

Turning to the facts before it, the court found there was no excusable neglect. Beginning with the question of prejudice, the court found that, had the trustee known of the pending action, he might have been able to avoid the chiropractor’s lien or managed to negotiate a settlement in excess of the exemption amount. The court was also persuaded that the length of the delay was excessive in light of the fact that the debtor had ample notice of the need to disclose the personal injury case. The court pointed to an “Automobile Accident Questionnaire” she filled out as part of her chiropractic treatment, the instructions on Schedule B that specifically ask for information about accidents and insurance claims, and the trustee’s questions at the 341 meeting in which he asked if either debtor had a right to sue and gave as an example a car accident. While the court noted that Ms. Armijo seemed credible and intelligent and did not appear to have acted in bad faith, it concluded that her continued failure to disclose the personal injury case was unreasonable. The court sustained the trustee’s objection to the exemption.

The debtors have filed an appeal to the BAP for the Tenth Circuit (appeal No. 18-19), along with the similar case of In re Dollman, 2018 WL 1172922 (Bankr. D. N.M. March 5, 2018) (appeal No. 18-30).

Mendoza Bankr NM opinion Jan 2018


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