In re Shelton

• Decision Date: 10 June 1996
• Docket Number: Bankruptcy No. 93-34009-S.
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re Andrew C. SHELTON, Debtor.

201 B.R. 147 (1996)

In re Andrew C. SHELTON, Debtor.

Bankruptcy No. 93-34009-S.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

June 10, 1996.

COPYRIGHT MATERIAL OMITTED

Kenneth W. Paciocco, Richmond, VA, for Debtor.

Roy M. Terry, Jr., Douglas Scott, Durrette, Irvin & Bradshaw, P.C., Richmond, VA, for Trustee.

Gregg R. Nivala, Assistant U.S. Trustee, Office of United States Trustee, Richmond, VA.

MEMORANDUM OPINION

BLACKWELL N. SHELLEY, Bankruptcy Judge.

This matter comes before the Court on a motion by Keith L. Phillips, ("Phillips") to reopen the bankruptcy case of Andrew C. Shelton, ("Mr. Shelton"), and to consolidate the reopened case with the bankruptcy case of Mr. Shelton's wife, Deborah S. Shelton, ("Mrs. Shelton"), in order to administer jointly held assets. Phillips is Mrs. Shelton's Chapter 7 Trustee in In re: Deborah S. Shelton, Bankr.Case No. 95-31931-T.

This is a core matter over which this Court has jurisdiction under 28 U.S.C. §§ 1334, 157(b)(2)(A) and 157(b)(2)(O). After considering argument of counsel at a hearing on this motion held May 1, 1996, and the briefs filed by both parties, the Court makes the following findings of fact and conclusions of law.

Findings of Fact

Neither party presented evidence at the hearing on this matter. The Court therefore makes its decision based upon judicial notice of the schedules and other documents filed by both Mr. and Mrs. Shelton in their respective bankruptcy proceedings, and the explanations for some of those documents presented by counsel.

Mr. Shelton filed his Chapter 7 petition on September 30, 1993. In his petition, as amended, Mr. Shelton listed assets of $307,700.00, liabilities of $373,209.55, a total of 54 creditors, and unsecured, nonpriority debts of $119,759.54. Mr. Shelton listed three parcels of real property jointly owned with Mrs. Shelton as a tenancy by the entirety, and four properties owned by himself in fee simple.¹ One tenancy by the entirety property located at 4906 Green Run Court, (the "Green Run Court Property"), appeared to represent the Shelton's primary residence, and was encumbered by a joint obligation of Mr. and Mrs. Shelton. Mr. Shelton's schedules showed a value exceeding secured encumbrances of approximately $16,500 in the Green Run Court Property.

The remaining two tenancy by the entirety properties were two unimproved lots in Goochland County, Virginia, (the "Goochland County Property"). Mr. Shelton's schedules stated that the Goochland County Property was owned as tenancy by the entirety property with a value of $59,000. His schedules also showed that the land was encumbered by an obligation to Ben Allen, ("Allen"), in the amount of $18,200 under which Mr. Shelton, and not his wife, was obligated. Mr. Shelton claimed the Goochland County Property and the Green Run Court Property exempt under 11 U.S.C. § 522(b)(2)(B).

Mr. Shelton's schedules showed only four joint obligations with his wife; three of these, totaling $6,141.92, were unsecured, and the fourth was the obligation secured by the Shelton's residence, the Green Run Court Property.²

Sherman B. Lubman, ("Lubman"), was appointed Chapter 7 Trustee in Mr. Shelton's bankruptcy case, and Lubman filed a Trustee's Report of No Distribution on December 7, 1993. Mr. Shelton received his discharge on January 14, 1994, and his case was closed on January 20, 1994. The record contains no indication that Lubman attempted to sell the real property owned jointly by Mr. and Mrs. Shelton as tenants by the entirety to satisfy their joint obligations, notwithstanding the fact that Mr. Shelton's schedules showed a total equity value of approximately $57,300 in that property, and joint, unsecured debts of $6,141.92.

Mrs. Shelton filed her Chapter 7 petition on May 12, 1995, listing assets of $194,580.00 and liabilities of $159,266.80, to include unsecured, nonpriority debt of $24,360.09. Mrs. Shelton's schedules listed 13 creditors, a number of which appeared to represent the same debts listed in her husband's earlier petition.

But Mrs. Shelton's characterization of her debts, if true, cannot be wholly reconciled with Mr. Shelton's earlier bankruptcy schedules. For instance, presumably as a result of Mr. Shelton's discharge, Mrs. Shelton's schedules list individual, unsecured obligations to Lowes Home Center, Ted Lansing and NationsBank of Delaware. Mr. Shelton earlier characterized these same debts as joint obligations. But Mrs. Shelton lists a number of other debts, both as joint and individual, which are identical to the "individual" obligations listed by Mr. Shelton on his schedules.³ Moreover, Mrs. Shelton lists one real property, known as 334 Crawford Street, (the "334 Crawford Street Property") as being owned with Mr. Shelton as a tenancy by the entirety, where Mr. Shelton earlier stated fee simple ownership of the same property.⁴ Mrs. Shelton listed the Goochland Property and her primary residence, both of which are tenancy by the entirety properties owned with Mr. Shelton, as exempt in her bankruptcy case under 11 U.S.C. § 522(b)(2)(B).

At the hearing on this matter, Mr. Shelton's attorney provided some explanation for the inconsistencies in their schedules, stating that Mrs. Shelton listed some of Mr. Shelton's discharged debts on her schedules in an abundance of caution in an attempt to prevent the relevant creditors from asserting some claim against her in the future. Presumably, this precautionary scheduling would include the obligations to Massey Builders and Ruffin & Payne. See supra note 3. Mr. Shelton's counsel did not provide an explanation for the appearance of the same Massey Builders debt as an individual obligation on Mr. Shelton's schedules, but a joint obligation on Mrs. Shelton's schedules.

With respect to the obligation to Better Living, Mr. Shelton asserted that Better Living had obtained a pre-petition judgment against Mr. Shelton, which was discharged in his bankruptcy. Better Living then obtained a default judgment against Mrs. Shelton — after Mr. Shelton's discharge — making Better Living an individual, unsecured creditor of Mrs. Shelton. Mr. Shelton contends that Better Living was therefore not a joint creditor at the time of Mr. Shelton's petition, and was correctly identified as Mr. Shelton's individual creditor on his bankruptcy schedules. This explanation fails to state whether Mrs. Shelton was actually obligated to Better Living at the time of Mr. Shelton's bankruptcy, notwithstanding the fact that Better Living did not yet have a judgment against her.

Mr. Shelton, through counsel, did acknowledge at least two scheduling errors. With respect to the Ted Lansing and R.A. Siewers debts, Mr. Shelton's counsel asserted that Mr. Shelton was mistaken in his belief that those debts were his individual obligations. Mrs. Shelton had executed guarantees on those obligations, but Mr. Shelton had apparently forgotten this fact at the time he filled out his petition and schedules. Both creditors, Ted Lansing and R.A. Siewers, are now judgment lien creditors, and both Sheltons have apparently entered into a voluntary payment agreement with them. The Court notes that this explanation further adds to the confusion since the Ted Lansing debt is scheduled as a joint debt on Mr. Shelton's schedules, not as an individual debt as asserted by the Mr. Shelton's counsel.

Mr. Shelton asserts that with respect to the Goochland County Property, only three joint creditors exist. First, the Sheltons acknowledge that Allen holds a first deed of trust on the Goochland County Property, and is a joint creditor. Mr. Shelton does not explain why the obligation to Allen was listed as an individual debt in his schedules. And as stated above, Mr. Shelton also acknowledges that both Ted Lansing and R.A. Siewers are joint, judgment lien creditors. Mr. Shelton fails to explain why the obligations to Ted Lansing and R.A. Siewers remained joint obligations notwithstanding Mr. Shelton's earlier discharge, nor how Massey Builders became a secured joint creditor after Mr. Shelton's discharge, nor how Allen became a joint creditor after Mr. Shelton's discharge, nor the discrepancy in listing the ownership status of the 334 Crawford Street Property as fee simple on Mr. Shelton's schedules and tenancy by the entirety on Mrs. Shelton's schedules.

After reviewing the Sheltons' bankruptcy schedules and noting the inconsistencies between them, Phillips filed an objection to Mrs. Shelton's attempted exemption of the Goochland County Property on August 5, 1995. Phillips then entered into negotiations with the Sheltons in an attempt to reach a settlement of this matter. After those negotiations failed, on April 5, 1996, Phillips filed a motion to reopen Mr. Shelton's case, and to consolidate the reopened case with Mrs. Shelton's in order to administer the jointly held assets for the satisfaction of joint obligations.

Conclusions of Law

The Bankruptcy Code permits the Court to reopen a closed case "to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b) (West 1996). Moreover, the decision to reopen is left to the sound discretion of the Court. Maryland Hotel Supply Co. v. Seats (In re Seats), 537 F.2d 1176, 1177 (4th Cir.1976).

Phillips contends that the existence of tenancy by the entirety property in the Sheltons' bankruptcy estates, combined with the serial nature of the Sheltons' bankruptcy petitions, establishes sufficient "cause" to reopen Mr. Shelton's bankruptcy case. More specifically, Phillips asks this Court to reopen Mr. Shelton's case, and to consolidate the reopened case with Mrs. Shelton's bankruptcy case in order to permit him to administer and liquidate the Goochland County Property — assets owned by the Sheltons as tenants by the entirety and claimed exempt by them under 11 U.S.C. § 522(b)(2)(B) in their individual bankruptcies — in order to satisfy claims of the Sheltons' joint creditors.

It is well...