Debtor May Reopen Case 8 Years after Closing to Seek to Avoid Liens

Posted by NCBRC - February 22, 2022

There was “cause” to permit the debtor to reopen his chapter 7 bankruptcy eight years after closure to allow him to move to amend his schedules, claim a homestead exemption and avoid judicial liens, where there was no evidence that reopening would cause undue prejudice to any party and the debtor’s quest was not clearly futile. In re Paduch, No. 12-32101 (Bankr. D. Conn. Feb. 14, 2022).

More than eight years after his chapter 7 bankruptcy case was closed, the debtor sought to reopen in order to claim his homestead exemption in an amount greater than $0 and to list two judicial liens on his schedules as secured debts. In his motion to reopen, the debtor acknowledged that his ultimate goal was to avoid the judicial liens as impairing his homestead exemption. The trustee opposed the motion to reopen based on the doctrine of laches, arguing that the debtor could have claimed the exemption and sought to avoid the liens prior to the conclusion of his bankruptcy case. The trustee further argued that the debtor did not meet the standards for post-closure amendment of bankruptcy schedules.

The court began with section 350(b) which provides that a court may reopen a closed bankruptcy case “to administer assets, to accord relief to the debtor, or for other cause.” The movant has the burden of establishing “cause” but the term has been interpreted broadly to grant a bankruptcy court broad discretion to reopen. It may consider equitable circumstances including the debtor’s good faith and whether reopening would be a waste of judicial resources.

Although section 350(b) does not specify a time within which a motion must be brought, if a delay is unreasonable and causes prejudice to the opposing part, the doctrine of laches may create a bar against reopening.

As to the debtor’s motion to amend his schedules, Rule 1009(a) permits a debtor to amend his schedules as a matter of course while the case is open, but says nothing about amendment of schedules in a case that has been closed and reopened. The court discussed three approaches taken by other courts. The minority, and strictest approach, applies a complete bar to amendment once the original case is closed. The middle approach finds Rule 1009 to be inapplicable to a reopened case and, instead, applies the doctrine of excusable neglect as found in Rule 9006(b)(1). The third, and broadest approach applied in In re Mendoza, 595 B.R. 849 (B.A.P. 10th Cir. 2019), treats a reopened case like any open case and applies Rule 1009 accordingly.

Without specifying which approach it would adopt, the court found that cause existed to allow the debtor to reopen his case, after which he could seek to amend his schedules, claim a homestead exemption, and avoid the two judicial liens as impairing his exemption under section 522(f). The court reasoned that neither of the two judicial lienholders appeared or opposed the motion and there was no evidence of prejudice to any other party, nor was there evidence of unreasonable delay. The court cautioned, however, that its order was limited to the motion to reopen and the trustee or other party could still oppose a motion by the debtor to amend his schedules and to avoid the liens under section 522(f).

Paduch Bankr D. Conn Feb 2022


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