In re Paduch

• Decision Date: 14 February 2022
• Docket Number: Case No.: 12-32101 (AMN)
• Citation: 636 B.R. 340
• Parties: IN RE: Christopher S. PADUCH, Debtor.
• Court: U.S. Bankruptcy Court — District of Connecticut

636 B.R. 340

IN RE: Christopher S. PADUCH, Debtor.

Case No.: 12-32101 (AMN)

United States Bankruptcy Court, D. Connecticut, New Haven Division.

Signed February 14, 2022

Charles A. Eggert, Jr., Bartlett Law Offices, Charles A. Eggert, Jr., Charles A. Eggert Jr. Esq. LLC, New Haven, CT, for Debtor.

Steven E. Mackey, Office of the U.S. Trustee, New Haven, CT, for U.S. Trustee.

RE: ECF Nos. 19, 24

MEMORANDUM OF DECISION AND ORDER GRANTING DEBTOR'S MOTION TO REOPEN CASE FOR A LIMITED PURPOSE

Ann M. Nevins, Chief United States Bankruptcy Judge

Before the court is a motion pursuant to 11 U.S.C. § 350(b)¹ filed by the debtor, Christopher Paduch (the "Debtor"), seeking to reopen his closed case so he may: (1) amend his Schedule C (Exemptions) to claim a homestead exemption pursuant to Bankruptcy Code § 522(d)(1) ; (2) amend his Schedule D (Secured Claims) to list two pre-petition judgment liens (held by the "Two Lien Holders² ") previously listed on his Schedule F (Unsecured Claims); and (3) file a motion to avoid judicial liens impairing an exemption pursuant to Bankruptcy Code § 522(f). ECF No. 19. In response, the United States Trustee ("UST") filed an ‘Amended Statement Concerning Debtor's Motions to Reopen Case, Amend Schedules, and Avoid Judicial Lien Pursuant to § 522(f) ’ (the "Statement"), primarily arguing the doctrine of laches bars the reopening of this case. ECF No. 24. The Two Lien Holders have not appeared nor objected to the motion to reopen.

After a hearing, the court concludes there is cause to reopen the Debtor's case pursuant to Bankruptcy Code § 350(b), and to the extent the UST's Statement is an objection, it is overruled. ECF Nos. 19, 24.

Nature of the Proceedings

On September 17, 2012, the Debtor commenced this bankruptcy case by filing a voluntary petition under Chapter 7 of the Bankruptcy Code (the "Petition Date"). ECF No. 1. The Debtor listed the Two Lien Holders on Schedule F (Unsecured Claims) as holding unsecured, non-priority claims, but failed to list them on Schedule D as secured creditors. ECF No. 1, p. 25-26. Prior to closure of the case, no order was sought addressing the secured status of the Two Lien Holders’ judgment liens. By operation of law, the judgment liens passed unaffected through the Chapter 7 bankruptcy process. See , 4 Collier on Bankruptcy ¶ 506.06 (16th). On Schedule C, the Debtor claimed a homestead exemption in the amount of $0 in property located at 5 Schulman Veselak Road, East Haddam, Connecticut (the "Property"), pursuant to Bankruptcy Code § 522(d)(1). ECF No. 1, p. 14.

Thereafter, Chapter 7 Trustee Kara Rescia indicated she had fully administered the case and there were no assets to distribute to creditors. See, docket entry dated October 29, 2012. The Debtor received a Chapter 7 discharge on January 5, 2013, and the Clerk's Office subsequently closed the case. ECF No. 17.

Now, after more than eight (8) years, the Debtor seeks to reopen the case to file amended schedules asserting a homestead exemption in an amount greater than $0 and recognizing the secured status of the judicial liens. The Debtor admits the final objective is to file a motion seeking to avoid the Two Lien Holders’ judicial liens on the Property. ECF No. 19. Of course, on the Petition Date, the Debtor held the right to assert a homestead exemption in the Property in an amount greater than $0, and, he could have filed a motion to avoid the Two Lienholders’ judicial liens at any time prior to the closure of the case. The UST's Statement suggests that reopening should be barred because the doctrine of laches may apply and the Debtor has failed to meet the standard for a post-closure amendment of bankruptcy schedules. ECF No. 24.

Because the case is presently closed the only actionable motion now pending is the motion to reopen.³ D.Conn.Bankr.L.R. 5010-1(b)("[a]ny substantive motion filed with the Motion to Reopen may not be acted upon unless and until the Motion to Reopen is granted. If the substantive motion is a Contested Matter in accordance with Local Rule 9014-1, the substantive motion shall not be acted on, and a Notice of Contested Matter Bar Date shall not be served, unless and until the Motion to Reopen is granted."). This decision affects only the motion to reopen and does not address the substance of Debtor's § 522(f) motion nor any future amendment to Schedules C and D.

The Standard for Reopening a Closed Bankruptcy Case

Once a bankruptcy case has been closed pursuant to § 350(a), the court may reopen the case in order "to administer assets, to accord relief to the debtor, or for other cause," pursuant to § 350(b). 11 U.S.C. § 350(b) ; see also, Fed.R.Bankr.P. 5010 ("A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Bankruptcy Code."). "The reopening of a case is merely a ministerial or mechanical act which allows the court file to be retrieved ... to enable the court to receive a new request for relief; the reopening, by itself, has no independent legal significance and determines nothing with respect to the merits of any requested order." In re Levy , 2018 WL 1579888, 2 (Bankr. D. Conn. Mar. 29, 2018) (quoting, In re Suplinskas , 252 B.R. 293, 294–95 (Bankr. D. Conn. 2000) ).

The permissive language of Bankruptcy Code § 350(b) provides the court with broad discretion to determine whether a movant has demonstrated "good cause" to reopen a case. In re Velez, 604 B.R. 438, 443 (Bankr. S.D.N.Y. 2019). While the Code does not define what constitutes "cause" under § 350(b), courts have found that "cause to reopen a bankruptcy case includes the need to amend schedules to add assets or creditors." In re Stein, 394 B.R. 13, 15 (Bankr. E.D.N.Y. 2008). The moving party carries the burden in establishing cause to reopen. In re Arana, 456 B.R. 161, 172 (Bankr. E.D.N.Y. 2011), appeal dismissed, 2012 WL 3307357, 2012 U.S. Dist. LEXIS 113133 (E.D.N.Y. Aug. 12, 2012). In deciding whether cause exists, the court may consider equitable considerations and the facts surrounding the case. In re Plusfunds Group, Inc., 589 F. App'x 41, 42 (2d Cir. 2015) (noting a decision to reopen a case "invoke[s] the exercise of a bankruptcy court's equitable powers, which is dependent upon the facts and circumstances of each case.")(summary order). A debtor's good faith may be a significant consideration. In re Koch, 229 B.R. 78, 87-88 (Bankr. E.D.N.Y. 1999) (observing "[t]he lack of the element of good faith suggests an all too casual disregard for the disclosure requirements of this Court, and the fair and equitable treatment of [the debtor's] creditors as called for by the Bankruptcy Code, since they did not benefit from the reopening.").

The bankruptcy court should only reopen a case when "relief may ultimately be afforded to a party," not when it would be "futile or a waste of judicial resources." In re Galloway-O'Connor , 539 B.R. 404, 407 (Bankr. E.D.N.Y. 2015) (quoting , In re Mohammed , 536 B.R. 351, 355 (Bankr. E.D.N.Y. 2015) ). If the court determines cause exists to reopen the case, a trustee is not appointed, "unless the court determines that a trustee is necessary to protect the interests of creditors and the debtor or to insure sufficient administration of the case." Fed.R.Bankr.P. 5010. Here, the appointment of a trustee may be necessary and will be required.

The Equitable Doctrine of Laches

Neither § 350(b) nor its procedural counterpart, Fed.R.Bankr.P. 5010, prescribe a period by which a motion to reopen must be brought. See , 3 Collier on Bankruptcy ¶ 350.03 (16th). The legislative history of § 350(b) suggests a defense based upon the equitable doctrine of laches may be asserted against a motion to reopen despite not being expressly stated in § 350(b) or the Federal Rules. See , In Matter of Caicedo , 159 B.R. 104 (Bankr. D. Conn. 1993) (citing , H.R.Rep. No. 95–595 to accompany H.R. 8200, 95th Cong., 1st Sess. (1977), p. 338, U.S. Code Cong. & Admin. News 1978, pp. 5963, 6294.). "[T]he doctrine of laches may bar a debtor from reopening his case if the debtor caused unreasonable delay in asserting his rights, and such delay caused undue prejudice to an adverse party in asserting its right or defense." In re Sposato , 16-51463 (JAM), 2018 WL 3104600, at *2 (Bankr. D. Conn. May 4, 2018) (citing, In re Gucci , 197 Fed. Appx. 58, 60 (2d Cir. 2006) ).

A Debtor's Right To Amend Schedules After the Case is Closed

Bankruptcy Rule 1009(a) provides that "[a] voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed." Fed.R.Bankr.P. 1009(a). Even before a case is closed, a debtor's right to amend is not unlimited and an amendment can be denied upon a showing of bad faith by the debtor or prejudice to the creditor. See, In re Wiggs , 610 B.R. 57, 60 (Bankr. D. Conn. 2019). A debtor's right to amend schedules after a case is closed and subsequently reopened is murkier. See, In re McCowan , 09-10347-8-SWH, 2018 WL 4078613, at *3 (Bankr. E.D.N.C. Aug. 22, 2018) ("Courts are split on how to apply Rule 1009(a) to cases that were closed and have been subsequently reopened."). Courts take three approaches to this issue.

One approach – the strictest and apparent minority approach – imposes an absolute bar on certain amendments in reopened cases. See, In re Coverstone , 2006 WL 2136032 (Bankr. N.D. Ind. 2006) ; In re Bartlett , 326 B.R. 436 (Bankr. N.D. Ind. 2005) (same).

Another approach, considered the middle approach, applies the standard of excusable neglect found in Rule 9006(b)(1). Courts using the middle approach find the phrase "before the case is closed" renders Rule 1009 inapplicable in reopened cases and excusable neglect standard under Rule 9006(b)(1) to be the appropriate standard for determining whether such amendments should be allowed. See , In re Sievert , 634 B.R. 1030, 1035 (Bankr. W.D. Wis. 2021) ("This Court is persuaded by the reasoning of the courts that apply the middle...