In re Calixto
| Decision Date | 31 January 2023 |
| Docket Number | Case No. 17-18317-SMG |
| Parties | IN RE: Victoria CALIXTO, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
Hector Hernandez, Esq., Miami, FL, for Debtor.
ORDER GRANTING MOTION TO REOPEN CHAPTER 13 CASE
Debtor Victoria Calixto seeks to reopen her chapter 13 bankruptcy case so that she can file amended bankruptcy schedules to disclose a post-confirmation personal injury claim against Gulfstream Park Racing Association, Inc., which she had not previously disclosed in her bankruptcy case. Gulfstream opposes her motion, arguing it is an improper attempt avoid an adverse summary judgment ruling in state court litigation based on her failure to disclose this claim. For the reasons discussed below, the Court will grant her motion.
The Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code on June 30, 2017.1 Together with her bankruptcy petition, she filed all of her required bankruptcy schedules, her statement of financial affairs, and a creditor matrix listing the names and addresses of her creditors.2 The same day she filed her petition, she also filed a chapter 13 plan,3 a statement of her current monthly income and calculation of plan commitment period,4 and a certification that she had taken the required budget and credit counseling course.5
But her chapter 13 plan – as originally filed – could not be confirmed, and so on October 20, 2017, the Court dismissed her case.6 Ten days later, however, she filed a motion to reinstate her case,7 and on the day of the hearing on that motion, she filed a first amended chapter 13 plan.8 On November 22, 2017, the Court granted her motion to reinstate.9 She then filed a second amended plan on February 23, 2018,10 and on March 20, 2018, she filed a third amended plan.11 Her third amended plan proposed monthly plan payments of $330.00 for the first ten months, and $293.00 for months 11 through 60.12 The plan also provided that "PROPERTY OF THE ESTATE WILL VEST IN THE DEBTOR(S) UPON PLAN CONFIRMATION."13
On April 30, 2018, the Court entered an order confirming her third amended plan,14 and on July 5, 2018, the Court entered an amended confirmation order.15 The Debtor then made all of her required plan payments16 – paying all of her creditors 100% of their allowed claims17 – and on June 1, 2022, she received a discharge under 11 U.S.C. § 1328(a).18 Her case was then closed on September 28, 2022,19 pursuant to 11 U.S.C. § 350(a).
On March 17, 2021 – about three years after her plan was confirmed, and a little more than a year before she completed her plan payments – the Debtor alleges that she slipped and fell at the premises owned and operated by Gulfstream. On June 30, 2022 – about a month after receiving her discharge – she then sued Gulfstream for negligence in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida.20 The Debtor never amended her bankruptcy schedules to disclose this post-confirmation litigation claim.
Gulfstream moved for summary judgment in the state court, arguing that the Debtor lacked standing and was judicially estopped from pursuing the case because she never amended her bankruptcy schedules to disclose it.21 The Debtor then filed her motion to reopen this case.22
Bankruptcy Code section 350(b) provides that a closed bankruptcy case may be reopened "to administer assets, to accord relief to the debtor, or for other cause."23 Bankruptcy courts have broad discretion to reopen a closed case,24 and in deciding whether to reopen a case, courts "generally consider the benefit to creditors, the benefit to the debtor, the prejudice to the affected party and other equitable factors."25 To properly analyze these factors in this case, it is important to first understand the differences between a chapter 13 bankruptcy case and a chapter 7 bankruptcy case for individual debtors. With an understanding of those differences, the Court will then examine whether the litigation claim is property of the Debtor's bankruptcy estate, whether she was required to disclose it, and how (if at all) lack of disclosure affected her bankruptcy estate and its creditors.
Individual debtors most commonly file for bankruptcy under either chapter 13 or chapter 7 of the Bankruptcy Code.26 A chapter 7 case is a liquidation, in which the debtor surrenders to a trustee all non-exempt property she owned as of the petition date. The chapter 7 trustee then liquidates those assets to pay her creditors. And assuming the debtor did not commit certain enumerated bad acts,27 the debtor will then receive a discharge of most28 of her prepetition debts. In a chapter 13 case, however, a debtor does not surrender property to a trustee. Instead, chapter 13 "allows an income-earning debtor to hold onto her property while she pays her creditors back over a three-to-five-year period"29 out of her "regular income."30
While there is a trustee in chapter 13 cases, the chapter 13 trustee's duties differ significantly from that of a chapter 7 trustee. Unlike a chapter 7 trustee, a chapter 13 trustee does not have a duty to liquidate property of the estate.31 Rather, the chapter 13 trustee collects the debtor's plan payments,32 retains those payments pending confirmation of the plan,33 and if the plan is confirmed, distributes the payments to creditors in accordance with the plan.34 Another important consequence of confirmation is that if the plan is confirmed, unless the plan or confirmation order say otherwise, confirmation vests all property of the estate back in the debtor.35
Moreover, unlike in a chapter 7 case where the chapter 7 trustee has the right to "use, sell or lease" property of the estate,36 in a chapter 13 case, the debtor generally remains in possession of all property of the estate37 and has the right – exclusive of the trustee – to "use, sell, or lease" property of the estate.38 In other words, in a chapter 7 case, pre-petition litigation claims belong to the bankruptcy estate (not the debtor), and only the trustee (not the debtor) can sue on those claims. Thus, when a chapter 7 debtor fails to disclose a pre-petition litigation claim and then attempts to sue on it, there are usually issues as to standing, authority to sue, and potential violations of the automatic stay (as an impermissible act by the debtor to exercise control over property of the estate).
But in a chapter 13 case – regardless of whether it is property of the estate or has re-vested in the debtor – only the individual debtor can bring a litigation claim.39 Further, because a chapter 13 plan is funded from a debtor's income (rather than her assets), successful prosecution of a litigation claim in a chapter 13 case is usually less important to creditor recoveries – particularly when a debtor will repay her unsecured creditors 100% of their claims from her regular income.40
Whether under chapter 7 or chapter 13, upon the filing of a bankruptcy petition an estate is created.41 With certain exceptions, Bankruptcy Code section 541 provides that the estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case .42 Under section 541(a)(5), certain property interests acquired within 180 days after the petition date also become property of the estate: (A) property acquired by bequest, devise, or inheritance; (B) property acquired as a result of a marital property settlement or divorce decree; or (C) property acquired as a beneficiary of a life insurance policy or death benefit plan.43 And under section 541(a)(7), any interest in property that the estate acquires after the commencement of the case also becomes property of the estate.44
In a chapter 7 case, there is a clear distinction between property the debtor acquires after the commencement of the case and property the estate acquires after the commencement of a case. This is less clear in a chapter 13 case. In a chapter 13 case, Bankruptcy Code section 1306 provides that property of the estate also includes (in addition to the property specified in section 541 ): (1) all property listed in section 541 that the debtor acquires after the commencement of the case (but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12), plus (2) earnings from services performed by the debtor after the commencement of the case (but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12).45 In other words, in a chapter 13 case, property of the estate includes all of the property listed in section 541 (), plus the debtor's post-petition earnings, plus post-petition property the debtor acquires.
Bankruptcy Code section 1327(b) then states that, unless otherwise provided in the plan or confirmation order, upon confirmation of a chapter 13 plan, all property of the estate vests in the debtor.46 This means that any property that was property of the estate under sections 541 and 1306 reverts to – and becomes – property of the debtor upon confirmation. But what about property the debtor acquires after confirmation of her plan, but before she completes her plan payments, obtains a discharge, and her case is closed – like the litigation claim here? Under section 1306(a)(1), it seems clear that the Debtor's litigation claim against Gulfstream was property of her bankruptcy estate.47 That is because it is property of a kind specified in section 541 (), that the debtor acquired after commencement of the case, but before the case was closed, dismissed, or converted.48
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