In re Candelaria, CV 90-1533 (RR).
| Citation | 121 BR 140 |
| Decision Date | 15 November 1990 |
| Docket Number | No. CV 90-1533 (RR).,CV 90-1533 (RR). |
| Parties | In re William D. CANDELARIA and Wanda Candelaria, Debtors. |
| Court | U.S. District Court — Eastern District of New York |
Lance Roger Spodek, P.C., New York City by Lance Roger Spodek, for debtors.
Debtors William and Wanda Candelaria appeal without opposition from an order of Bankruptcy Judge Marvin A. Holland denying leave to reopen their Chapter 7 bankruptcy case for the purpose of listing an omitted creditor. In re Candelaria, 109 B.R. 600 (Bankr.E.D.N.Y.1990). This court reverses and remands the case for proceedings consistent with this opinion.
Perhaps because this appeal is unopposed, the record submitted to this court is minimal. As best as can be gleaned from the papers presented, it appears that on July 19, 1988, debtors filed a joint petition in this district for relief from various consumer obligations under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 301 (1988). No assets being available for distribution, the listed creditors were notified in writing by the bankruptcy court that a meeting of creditors would be held on August 25, 1988. Pursuant to Bankruptcy Rule 2002(e), they were specifically advised that:
It appears from the schedules of the debtor that there are no assets from which any dividend can be paid to creditors. It is unnecessary for any creditor to file his claim at this time in order to share in any distribution from the estate. If it subsequently appears that there are assets from which a dividend may be paid, creditors will be so notified and given an opportunity to file their claims.
The scheduled meeting of creditors was held. Thereafter, on January 17, 1989, the bankruptcy court granted debtors a full discharge pursuant to 11 U.S.C. § 727 (1988).
On January 4, 1990, debtors moved to reopen their bankruptcy case pursuant to § 350(b) of the Code, 11 U.S.C. § 350(b) (1988), to add Bank of America to the scheduled list of creditors. Debtors claimed that the omission of this creditor, and the $1,919.12 owed it, was inadvertent and not discovered until some ten months after the discharge order. Despite notice of motion, neither Bank of America nor the Bankruptcy Trustee appeared in opposition. Nevertheless, on January 24, 1990, the bankruptcy court denied the motion, finding that reopening would not accord any relief to the debtors since, in light of exceptions provided in 11 U.S.C. § 523(a)(3)(A) and (B) (1988), Bank of America's debt was no longer dischargeable as a matter of law. In re Candelaria, 109 B.R. at 601.
Debtors now challenge this ruling.
11 U.S.C. § 350(b) permits a bankruptcy case to be reopened "to administer assets, to accord relief to the debtor, or for other cause." Because the decision to reopen a case is within the "sound discretion of a bankruptcy court," a district court reviewing the matter on appeal, see 28 U.S.C. § 158(a) (1988), can vacate that decision only "upon a showing that the failure to reopen was an abuse of discretion." See In re Sheerin, 21 B.R. 438, 439-40 (1st Cir.BAP 1982); In re McNeil, 13 B.R. 743, 745 (Bankr.S.D.N.Y.1981).
In this case, the bankruptcy court's conclusion that reopening would afford the debtor no relief because the debt to Bank of America was no longer dischargeable was an erroneous interpretation of applicable law. Accordingly, reversal is mandated.
Preliminarily, the court notes that a desire to amend "a schedule to include an additional creditor and, thus, accurately reflect all debts owed," generally "constitutes sufficient cause to reopen" a no asset bankruptcy case. See In re Jensen, 46 B.R. 578, 581 (Bankr.E.D.N.Y.1985); accord In re Daniels, 51 B.R. 142, 143 (Bankr.S.D.Ohio 1985) (). This is because "the Bankruptcy Code places a premium on scheduling all creditors. . . ." In re Godley, 62 B.R. 258, 261-62 n. 1 (Bankr.E.D.Va.1986). In the vast majority of cases, a debtor's motion to reopen is prompted, of course, by his desire to discharge the omitted debt. Absent some harm or prejudice to the omitted creditor, this motive is cited approvingly by bankruptcy courts, since it will accord relief to the debtor. See, e.g., Matter of Davidson, 36 B.R. 539, 543 (Bankr.D.N.J.1983).
Thus, numerous courts have held that motions to reopen no asset cases to list omitted creditors should be liberally granted unless: (1) the omission was the result of fraud, recklessness or intentional design on the part of the debtor, or (2) reopening would prejudice the creditor in two protected areas, i.e., its right to participate in a dividend and its right to obtain a determination of dischargeability. See Matter of Baitcher, 781 F.2d 1529, 1534 (11th Cir. 1986); In re Rosinski, 759 F.2d 539, 541 (6th Cir.1985); Matter of Stark, 717 F.2d 322, 323 (7th Cir.1983) (per curiam); In re DeMare, 74 B.R. 604, 605 (Bankr.N.D.N.Y. 1987); In re Maddox, 62 B.R. 510, 514 (Bankr.E.D.N.Y.1986); In re Godley, 62 B.R. at 261; In re Tinnenberg, 57 B.R. 430, 432 (Bankr.E.D.N.Y.1985); In re Daniels, 51 B.R. at 143; Matter of Zablocki, 36 B.R. 779, 783 (Bankr.D.Conn.1984); Matter of Davidson, 36 B.R. at 543.
The right to participate in a dividend and the right to obtain a determination of dischargeability are at the heart of the exceptions to discharge provided for in 11 U.S.C. § 523(a)(3), which the bankruptcy court relied on in this case in holding that the debt to Bank of America was no longer dischargeable.
The relevant portions of § 523 provide:
Id. (Emphasis added).
The Bankruptcy Code does not itself fix time periods for filing claims or requests for discharge. These are specified in the Bankruptcy Rules. See In re Maddox, 62 B.R. at 513.
Bankruptcy Rule 3002(c) requires a proof of claim to be filed "within 90 days after the first date set for the meeting of creditors. . . ." Subsection (5) of the rule creates an exception, however, for what are commonly referred to as "no asset" cases. Where it is determined that a debtor lacks assets sufficient to pay any dividend to his creditors, Rule 2002(e) provides for notice of that fact to be given to scheduled creditors and for them to be advised that they need not file any present proof of claim. If, at some future point — even after discharge — the trustee discovers estate assets sufficient to pay creditors a dividend, Rule 3002(c)(5) requires that creditors receive new notice and be given 90 days from that date to file proofs of claim.
This scheme is in marked contrast to that existing under the Bankruptcy Act of 1898. Section 57(n) of the Act (former 11 U.S.C. § 93) expressly provided that any claim "not filed within six months after the first date set for the first meeting of creditors" not be allowed. Thus, the Second Circuit, in Milando v. Perrone, 157 F.2d 1002 (2d Cir.1946), held that, after the expiration of this statutory period, the reopening of a bankruptcy proceeding to add new creditors served no purpose. While Milando still controls cases where fixed time periods exist for filing claims, see generally In re Laczko, 37 B.R. 676 (9th Cir.BAP 1984), aff'd mem., 772 F.2d 912 (9th Cir.1985), many courts, including several in this circuit, have concluded that its reasoning is inapposite to the more fluid filing period that is provided for no asset cases under the new Code and Rules. See, e.g., In re Maddox, 62 B.R. at 513; In re Jensen, 46 B.R. at 581-82; Matter of Zablocki, 36 B.R. at 782-83; Matter of Davidson, 36 B.R. at 542.
Nevertheless, the bankruptcy court in this case held, without citation to any authority, that because there was never any subsequent discovery of assets or new notice to creditors, the 90-day period for filing proofs of claim controlled, and, thus, under § 523(a)(3), the debt to Bank of America could no longer be discharged since that creditor could not file proof of claim within the limited period.
This holding is at odds not only with the express notice given creditors in this case, which stated "it is not necessary to file a claim at this time," but also with the rationale underlying the treatment of no asset cases in the Bankruptcy Code and Rules. As was noted in In re Mendiola, 99 B.R. 864, 867 (Bankr.N.D.Ill.1989), the sole purpose of a proof of claim is to allow the creditor to assert a right to participate in the distribution of any assets. In a no asset case, the right to file a proof of claim is initially "meaningless and worthless." Id. There simply are no assets to which to lay claim. It is thus that Rule 2002(e) permits creditors to be advised that they need not file proof of claim unless and until they receive notice that sufficient assets have been discovered to permit payment of a dividend. As a result, various courts have recognized that in a no asset Chapter 7 case, the time for filing a claim does not expire within 90 days of the...
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