In re Sheckard

• Decision Date: 06 February 2008
• Docket Number: No. 05-22366REF.,05-22366REF.
• Citation: 386 B.R. 118
• Parties: In re Seth Clark SHECKARD and Denise Michelle Sheckard, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

386 B.R. 118

In re Seth Clark SHECKARD and Denise Michelle Sheckard, Debtors.

No. 05-22366REF.

United States Bankruptcy Court, E.D. Pennsylvania.

February 6, 2008.

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Michael D. Hess, Burke & Hess, Lancaster, PA, for Debtors.

MEMORANDUM OPINION SUPPORTING AND SUPPLEMENTING ORDER DATED JANUARY 17, 2008, WHICH GRANTED DEBTORS' MOTION TO AVOID THE LIEN OF UNIFUND'S DEFAULT JUDGMENT

RICHARD E. FEHLING, Bankruptcy Judge.

I. INTRODUCTION

Debtors, Seth Clark Sheckard and Denise Michelle Sheckard, filed their joint petition seeking relief under Chapter 7 of the Bankruptcy Code in April 2005. They received their discharge and their case was closed in September 2005. In October 2007, Debtor Mrs. Sheckard, closed the sale of their home, which had been titled in her name alone. At or near the time of the closing, the title agent informed Mrs. Sheckard that a judgment lien existed in favor of Unifund CCR Partners ("Unifund") and the parties closed the sale and created an escrow of $18,689.32 (the amount of the judgment) from the sale proceeds. Debtors moved to reopen this bankruptcy case and to avoid the lien resulting from the judgment. Over the objections of Unifund, I granted both motions. I ordered that this case be reopened and that the judgment lien be avoided in its entirety because (i) Unifund showed no prejudice from the delay, (ii) the sale of the property (with the escrow of a portion of the sale proceeds) did not divest me of my power to avoid the lien, and (iii) the lien impaired the homestead exemption and was therefore avoidable in its entirety. Unifund has filed its notice of appeal from my order avoiding the lien. I regard the appeal as relating, at least to some extent, to both my order reopening this case, and my order avoiding the judgment lien.¹ This Memorandum Opinion is written to supplement and support my January 17, 2008 Order avoiding the lien² and constitutes my findings of fact and conclusions of law.

II. PROCEDURAL BACKGROUND

Through its Praecipe dated February 21, 2005, Unifund sought judgment by default against Mrs. Sheckard in the Lancaster County, Pennsylvania, Court of Common Pleas, at docket number CI-04-11725 (the "Lancaster County Litigation"). The face amount for which Unifund sought default judgment was $18,689.32 (the "Default Judgment").³ Counsel for Unifund stated that Debtors had notice of the Default Judgment because they had referred to it in their bankruptcy papers filed with the Court.⁴ This statement was and is incorrect. Moreover, Unifund said nothing about providing any notice of the Default Judgment whatsoever to Mrs. Sheckard or her counsel. Counsel for Debtors, on the other hand, specifically offered that his clients claimed that they had no notice of the Default Judgment.⁵ He refuted Unifund's statement that Debtors had referred to the Default Judgment in their bankruptcy documents and stated that Debtors did not know that the Lancaster County Case had gone to judgment when they filed this case.⁶ About two months after entry of the Default Judgment, on April 25, 2005,⁷ Debtors filed their joint petition seeking relief under Chapter 7 of the Bankruptcy Code. Both Debtors received their discharge on September 19, 2005, and their case was closed on that same date.

In their Schedule A-Real Property, Debtors identified their residence at 844 Houston Street, Columbia, Lancaster County, Pennsylvania (the "Property"), as being owned jointly by Debtors.⁸ Debtors valued the Property at $49,000 and noted that a single mortgage lien existed against the Property in the amount of $47,335. In their Schedule C — Property Claimed as Exempt, Debtors claimed the value of the Property less the mortgage lien ($1,665) as exempt pursuant to Section 522(d)(1) of the Bankruptcy Code. In their Schedule D — Creditors Holding Secured Claims, Debtors again list the first mortgage on their Property in the amount of $47,335. In their Schedule F-Creditors Holding Unsecured Nonpriority Claims, Debtors listed two debts owed to Unifund Corp.: One in the amount of $4,012 (account 1065472874)⁹ owed by Mr. Sheckard and the other in the amount of $6,763 (account 10654728749315) owed by Mrs. Sheckard.¹⁰

Debtors did not identify either of the Unifund Corp. claims as secured in their bankruptcy and no entity with Unifund in its name filed any claim in which it noted a secured claim. In Paragraph 4 of their Statement of Financial Affairs, Debtors disclosed the Lancaster County Litigation of Unifund against Mrs. Sheckard and described it as "Pending." Nowhere in their bankruptcy documents do Debtors recognize that the Default Judgment existed.

Although Debtors had identified the Property as being owned by them jointly, the deed for the Property shows that Debtor, Mrs. Sheckard, was the sole owner of the Property when it was acquired in October 1997. And on October 30, 2007, Mrs. Sheckard alone executed the deed that conveyed the Property to third party buyers for $65,000. Her October 2007 sale of the Property triggered the present dispute. The title agent responsible for closing the sale discovered the Default Judgment and would not allow the sale to close without some way of eliminating the Default Judgment as a lien on the Property. The parties at closing,¹¹ including the title agent, agreed that the title agent would hold in escrow $18,689.32 (the amount of the Default Judgment) from the sale proceeds. The sale of the Property then closed. Although both counsel during the hearing on the motion to reopen were uncertain whether the lien of the Default Judgment encumbered the Property after the October 2007 sale,¹² they ultimately agreed that it does.

On November 2, 2007 (only three days after the closing of the sale of the Property), Debtors filed their Motion To Reopen Bankruptcy Proceeding (the "Reopen Motion") for the purpose of filing a later motion to avoid the lien of the Default Judgment because it impaired their exemption in the Property. Unifund opposed the Reopen Motion and I held a hearing on November 27, 2007, during which I ruled from the bench and granted the Reopen Motion. I also memorialized my reopening of the case with a written Order signed at the hearing. On December 21, 2007, Debtors filed their Motion To Avoid Judgment Lien of Unifund (the "Avoidance Motion"),¹³ to which Unifund responded on January 10, 2008. I held the hearing on the Avoidance Motion on January 17, 2008, and took the matter under advisement. Later that day, after further review of the Avoidance Motion, Unifund's response, and the arguments made in Court, I issued the Order granting the Avoidance Motion and avoiding the Default Judgment as a lien on the Property that impaired Mrs. Sheckard's exemption. Unifund filed its Notice of Appeal on January 22, 2008. This Memorandum Opinion supplements and supports my January 17, 2008 Order granting the Avoidance Motion and avoiding the lien of the Default Judgment.

III. DISCUSSION

Before discussing the legal issues relating to either motion, I will review how the facts, generally undisputed as they are, were determined in this matter. At the January 17, 2008 hearing, neither party had witnesses or exhibits. I questioned both counsel, asking them specifically if they would stipulate that I could consider their statements in their arguments as facts before me unless opposing counsel noted an objection. Both counsel agreed.¹⁴ I therefore regarded as established for my consideration all of the statements of facts presented by either counsel in their arguments at the hearing, requiring no further evidence. Moreover, I will also take judicial notice of and consider the documents on the docket in this case.¹⁵

Different counsel appeared on behalf of Unifund at the two hearings,¹⁶ but they offered very similar arguments. Because I considered the statements of counsel at the two hearings in this case for both the Reopen Motion and the Avoidance Motion and because counsel presented similar arguments in both matters, I will discuss the motions together.

A. Issues Relating To The Reopen Motion And The Avoidance Motion

Unifund advanced four arguments. First, Unifund believed that laches prevented me from reopening the case and avoiding the lien of the Default Judgment. The laches defense, according to Unifund and case law it cited, has three components: (1) Passage of two to two, and one-half years (depending on the dates on which the calculation is based),¹⁷ (2) Debtors' knowledge of the lien of the Default Judgment,¹⁸ and (3) prejudice to Unifund. Second, Unifund argued that Mrs. Sheckard has no standing and I do not have jurisdiction to consider the Avoidance Motion because Section 522(f)(1)(A) of the Bankruptcy Code¹⁹ no longer applied upon the sale of the Property to a third party. Third, Unifund claimed that Debtors filed the Reopen Motion and the Avoidance Motion in bad faith. Fourth, Unifund argued that, assuming Debtors are entitled to avoid the lien of the Default Judgment, the lien should only be avoided to the extent of the exemption identified in Debtors' Schedule C, which was $1,665. Because I conclude that Unifund's arguments on each of these issues failed to carry the day, I ordered that the case be reopened in November 2007 and entered my January 17, 2008 Order avoiding the lien of the Default Judgment.

B. Reopening A Case Is Within A Bankruptcy Court's Broad Discretion

Among the grounds for reopening a case is a debtor's desire to file a motion to avoid a lien under Section 522(f). See Collier on Bankruptcy ¶ 50.03[3] (15th ed. rev.2007). I have broad discretion to reopen a case to accord relief to the debtor. 11 U.S.C. § 350(b); Fed. R. Bankr.P. 5010. The Third Circuit declared that "bankruptcy courts have broad discretion to reopen cases after an estate has been administered." Zinchiak v. CIT Small Bus. Lending Corp. (In re Zinchiak), 406 F.3d 214, 223 (3d Cir.2005).²⁰ See also AK Valley Fed'l Credit...