In re Tarkington

Decision Date29 October 2003
Docket NumberNo. 00-32580.,00-32580.
Citation301 B.R. 502
PartiesIn re Bryan Keith TARKINGTON, Tina Marie Tarkington, Debtors.
CourtU.S. Bankruptcy Court — Eastern District of Tennessee

Richard M. Mayer, Knoxville, TN, for Debtors.

Hodges, Doughty & Carson, Thomas H. Dickenson, Knoxville, TN, for Knoxville TVA Employees Credit Union.

William T. Hendon, Knoxville, TN, Chapter 7 Trustee.

Richard F. Clippard, United States Trustee, Patricia C. Foster, Knoxville, TN, for United States Trustee.

MEMORANDUM ON MOTION TO RE-OPEN CASE AND MOTION TO AVOID JUDICIAL LIEN

RICHARD S. STAIR, Jr., Bankruptcy Judge.

The following matters are presently before the court: (1) Motion to Re-Open Case; and (2) Motion to Avoid Judicial Lien Impairing Debtors' Homestead Exemption (Motion to Avoid), both filed by the Debtors on September 8, 2003. The Debtors first seek to reopen their bankruptcy case and then avoid a judicial lien in favor of Knoxville TVA Employees Credit Union (the Credit Union) encumbering their former residence in Sevierville, Tennessee, because the lien allegedly impairs their homestead exemption. The Credit Union opposes both motions, arguing that it would be futile to reopen the Debtors' bankruptcy case because the court does not have jurisdiction to grant the Motion to Avoid nor do the Debtors still own the real property, therefore no exemption rights still exist.

The trial on these motions was held on October 21, 2003. The record before the court consists of written Stipulations of Fact filed by the parties on October 20, 2003, three exhibits entered into evidence,1 and the testimony of John Redwine, Collection Manager of the Credit Union, and the Debtor, Bryan Tarkington.

This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(A), (B), (K), and (O) (West 1993).

I

The Debtors filed the voluntary petition commencing their Chapter 7 bankruptcy case on June 29, 2000. On Schedule A, the Debtors listed their residence at 1220 Jackie Drive, Sevierville, Tennessee (the Residence), at the value of $100,000.00, with liens totaling $105,000.00, held by Tennessee State Bank and Citizens National Bank. The Debtors claimed a homestead exemption in the Residence on their Schedule C in the amount of $7,500.00, as allowed by Tennessee Code Annotated section 26-2-301 (2001).

The Debtors listed the Credit Union as an unsecured creditor on Schedule F, with a claim in the amount of $8,917.00. The Credit Union filed an unsecured proof of claim in the amount of $9,324.23 on November 22, 2000, with supporting documentation. Although a copy was not attached to its proof of claim, on April 12, 2000, the Credit Union obtained a judgment in the Knox County General Sessions Court in the amount of $9,287.31 against the Debtor, Tina Marie Tarkington. The judgment was recorded with the Sevier County Register of Deeds on April 25, 2000, and by virtue of Tennessee Code Annotated section 25-5-101(b) (2001),2 created a judicial lien encumbering Tina Marie Tarkington's survivorship interest in the Residence. See Arango v. Third Nat'l Bank (In re Arango), 992 F.2d 611, 613 (6th Cir.1993) (Under a tenancy by the entirety, the lien creditor of one spouse "may execute a judgment only against that spouse's right of survivorship.").

On October 25, 2000, the Debtors were

granted their discharge.3 Their bankruptcy estate was fully administered by the Chapter 7 trustee, who recovered and distributed funds in the total amount of $508.67 to unsecured creditors, including the Credit Union, which received a payment of $73.16 on November 21, 2001. Thereafter, on April 18, 2002, the court entered the Final Decree, closing the Debtors' bankruptcy case.

On September 2, 2003, the Debtors sold the Residence for $116,500.00. After payment of expenses of sale, closing costs, and $65,194.45 to Tennessee State Bank in satisfaction of its first mortgage lien, the Debtors realized $38,947.77.4 The Credit Union's lien was not satisfied from the proceeds of the sale, and the parties stipulate that it remains a lien against the Residence.5 To date, Quality Title, Inc., the title company that conducted the closing, has not requested a release of the lien from the Credit Union, but instead, it holds the entire $38,947.77 in escrow.

On September 8, 2003, the Debtors filed the present Motion to Re-Open Case and Motion to Avoid. Mr. Tarkington testified that the Debtors were unaware that the Credit Union had a judicial lien against the Residence at the time they filed bankruptcy, and that they filed the motions after discovering the lien while selling the Residence. They aver that the Credit Union's judicial lien impairs their homestead exemption of $7,500.00, and thus, it should be avoided. Additionally, the Debtors urge the court to employ the valuation of the Residence provided in their Schedule A, despite the fact that the Residence recently sold for $116,500.00.

The Credit Union opposes both motions. First, it opposes the Motion to Avoid, arguing that the court does not have jurisdiction to avoid the lien because the Debtors no longer own the Residence, and that the outcome of the proceeding has no effect upon the bankruptcy estate. Second, the Credit Union argues that because the Debtors no longer own the Residence, they no longer have the right to avoid the lien. Third, with respect to the Motion to Avoid, the Credit Union avers that the proper valuation of the Residence should be the sale price obtained on September 2, 2003, of $116,500.00. The Credit Union argues that the amounts still owing on the first two mortgages were far less than the amounts at the time of the Debtors' bankruptcy filing, resulting in proceeds exceeding the amounts of all three liens on the Residence, and leaving more than $20,000.00 to be realized by the Debtors. Finally, because the Motion to Avoid should be denied, the Credit Union maintains that it would be futile to reopen the Debtors' bankruptcy case, and accordingly, the court should deny that motion as well.

II

The Debtors have requested that the court reopen their bankruptcy case in order to avoid the Credit Union's judicial lien. The court derives its authority to reopen a closed bankruptcy case from Bankruptcy Code § 350(b), which provides that "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C.A. § 350(b) (1993).6 The decision to reopen a bankruptcy case is within the bankruptcy judge's sound discretion. See Rosinski v. Boyd (In re Rosinski), 759 F.2d 539, 540-41 (6th Cir.1985). In making its determination, the court "must strike a balance between the rights of [the affected] creditors on the one hand and the policy of the fresh start afforded to Debtor by operation of Chapter 7 of the Bankruptcy Code." In re Frasier, 294 B.R. 362, 366 (Bankr.D.Colo.2003).

There are no statutory criteria set forth defining "cause" for reopening a closed case, and motions to reopen will be decided on a case by case basis, based upon the equities of each individual case. See Hawkins v. Landmark Fin. Co. (In re Hawkins), 727 F.2d 324, 326 (4th Cir.1984) ("[T]he right to reopen a case depends upon the circumstances of the individual case and that the decision whether to reopen is committed to the court's discretion."); In re Kapsin, 265 B.R. 778, 779-80 (Bankr.N.D.Ohio 2001). Nevertheless, "[t]he Court will not reopen [a] case if doing so would be futile [.]" In re Phillips, 288 B.R. 585, 587 (Bankr.M.D.Ga.2002); accord Chanute Prod. Credit Assoc. v. Schicke (In re Schicke), 290 B.R. 792, 798 (10th Cir. BAP 2003) ("A bankruptcy court that refuses to reopen a Chapter 7 case that has been closed will not abuse its discretion if it cannot afford the moving party any relief in the reopened case."). Absent the reopening of the Debtors' bankruptcy case, the Credit Union's judicial lien cannot be avoided. See In re Garrett, 266 B.R. 910, 916 (Bankr.S.D.Ga.2001) ("[I]f a case is not reopened, the loss of federal jurisdiction will ... preclude debtor's lien avoidance.").

Several courts have held that the avoidance of a judicial lien falls within the definition of "cause" in § 350(b). See, e.g., McDonald v. Home State Bank & Trust Co. (In re McDonald), 161 B.R. 697, 699 (D.Kan.1993) ("[A]llowing a debtor to reopen a case to utilize his avoiding powers is consistent with both the legislative history and the express language of Section 350(b)."); In re Cummings, 172 B.R. 268, 270-71 (Bankr.W.D.Ark.1994) ("[L]ien avoidance is sufficient cause for the purposes of § 305(b)."). Nevertheless, the courts agree that reopening cases shall not be allowed carte blanche, but instead, there are limitations that must be recognized.

Courts will not generally reopen a case if doing so will unduly prejudice the affected creditor. See, e.g., In re Bianucci, 4 F.3d 526, 528 (7th Cir.1993) ("[A] debtor may reopen the bankruptcy case at any time to avoid a lien absent a finding of prejudice to the creditor."); In re Oster, 293 B.R. 242, 246 (Bankr.E.D.Cal.2003) ("The remedy under section 522(f)(1) may be exercised at any time, even after the case has been closed and reopened, absent actual prejudice to the creditor, to protect an exemption that was properly claimed."). Additionally, "[a] recognized limitation on the granting of motions to reopen for lien avoidance is the doctrine of laches [,] ... which allows a court to dismiss an action when there exists inexcusable delay in instituting an action and prejudice to the non-moving party as a result of the delay." In re Levy, 256 B.R. 563, 567 (Bankr.D.N.J.2000). "As a general rule, courts will apply the doctrine of laches when the following two elements are present: (1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the defense." Frasier, 294 B.R. at 368 (citing Costello v. United States, 365 U.S. 265, 81 S.Ct. 534, 543, 5 L.Ed.2d 551 (1961)). In other words, when a debtor...

To continue reading

Request your trial
22 cases
  • In re Burris
    • United States
    • United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia
    • 15 d5 Abril d5 2022
    ...... interest." Slater v. United States Steel Corp.,. 871 F.3d 1174, 1186-87 (11th Cir. 2017). In exercising its. discretion, the court must balance the policy of a fresh. start afforded to the debtor against the rights of affected. creditors. In re Tarkington, 301 B.R. 502, 506. (Bankr.E.D.Tenn. 2003) (quoting In re Frasier, 294. B.R. 362, 366 (Bankr. D. Colo. 2003)). "Although a. motion to reopen is addressed to the sound discretion of the. bankruptcy court, the. . 4. . court in fact has a duty to reopen the ......
  • In re Owsley
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee
    • 29 d3 Maio d3 2013
    ...to reopen should not be granted if doing so would be futile because no relief can be afforded the moving party. In re Tarkington, 301 B.R. 502, 506 (Bankr.E.D.Tenn.2003); accord Chanute Prod. Credit Assoc. v. Schicke (In re Schicke), 290 B.R. 792, 798 (10th Cir. BAP 2003) (“A bankruptcy cou......
  • In re Sheckard
    • United States
    • U.S. District Court — Eastern District of Pennsylvania
    • 19 d5 Setembro d5 2008
    ...with the difficulty and expense of retrospectively valuing property several years later constitutes prejudice. See In re Tarkington, 301 B.R. 502, 507 (Bankr.D.Tenn.2003); In re Levy, 256 B.R. 563, 566 (Bankr.D.N.J. 2000); In re Montemurro, 66 B.R. 124, 125 (Bankr.E.D.N.Y.1984). However, th......
  • Hardwick Clothes, Inc. v. Jahn (In re HC Liquidation, Inc.)
    • United States
    • United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee
    • 13 d3 Novembro d3 2019
    ...of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the defense." In re Tarkington , 301 B.R. 502, 507 (Bankr. E.D. Tenn. 2003). Tennessee courts recognize that laches applies "only in comparatively rare cases." Montgomery , 355 F. Supp. ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT