In re Walker, Bankruptcy No. 93-11377-JEY
| Decision Date | 26 April 1996 |
| Docket Number | 94-11862-JEY,93-11862-JEY,93-12912-JEY,95-10717-JEY,93-13309-JEY,94-10039-JEY and 89-10291-JEY.,Bankruptcy No. 93-11377-JEY,92-11282-JEY,92-10580-JEY |
| Parties | In re Peter L. WALKER, Debtor. In re Lawrence & Elaine EMERTON, Debtors. In re Dean & Elaine GOULD, Debtors. In re Ronald A. NASTASI, Sr., Debtor. In re Anne ARNOLD, Debtor. In re James J. LaPLANTE, Debtor. In re Michael & Wanda KIRKER, Debtors. In re George & Arlene CULOTTA, Debtors. In re Thomas H. WHITTAKER, Debtor. In re June M. CALDWELL, Debtor. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire |
Geraldine Karonis, Manchester, NH, for US Trustee.
Patrick F. Harrigan, Portsmouth, NH, for Debtor Peter L. Walker.
Victor Dahar, Chapter 7 Trustee, Manchester, NH.
Keith R. Jacques, Jensen Baird Gardner & Henry, Biddeford, ME, for York River Lobster Trap Co.
Marc L. Van De Water, Thomas, Utell, Van De Water & Raiche, Manchester, NH, for Debtors Lawrence & Elaine Emerton.
W. James Doyle, Cloutier, Beliveau & Fradette, Manchester, NH, for the Cadle Company.
Stan Hawthorne, Hawthorne Law Center, P.C., Rochester, NH, for Debtors Dean & Elaine Gould.
Richard Craven, Chapter 7 Trustee, Tyngsboro, MA.
American Frozen Foods, Loren H. Rosson Jr., Spaloss & Rosson, Nashua, NH, for Added Creditor.
Barry Levine, Wakefield, MA, for Debtor Ronald A. Nastasi, Sr.
Jeffrey Schreiber, Chapter 7 Trustee, Schreiber & Associates, Danvers, MA.
General Electric Supply Co. and Wesco Supply Co., Jay M. Niederman, Niederman & Stanzel, Manchester, NH, for Added Creditors.
Raymond J. DiLucci, Concord, NH, for Debtor Anne Arnold.
Timothy C. Day, Hampton Falls, NH, for Rockland Trust Co.
Chris J. Seufert, Franklin, NH, for Debtor James L. LaPlante.
Steven Notinger, Chapter 7 Trustee, Donchess & Notinger, Nashua, NH.
Randall W. Lane, Lane & Bentley, Keene, NH, and John P. Rab, Rab & Neiman, P.A., Keene, NH, for Debtors Michael and Wanda Kirker.
Dennis Bezanson, Chapter 7 Trustee, Portsmouth, NH.
William Gannon, Wadliegh, Starr, Peters, Dunn, & Chiesa, Manchester, NH, for Debtors George and Arlene Culotta.
Richard Erricola, Chapter 7 Trustee, Richard Erricola Company, Inc., Sutton, MA.
Thomas Morgan, Salem, NH, and Frank V. Hekiman, Salem, NH, for Debtor Thomas H. Whittaker.
Mae J. Lew, Boston, MA, for IRS.
David Broderick, Concord, NH, Office of the U.S. Attorney.
A medieval scholastic would appreciate this opinion representing the undersigned judge's foray into the thicket of expanding case law on the simple question of whether a debtor should be able to reopen a chapter 7 no-asset bankruptcy case to add an omitted creditor to the schedules. Even more engrossing to said scholastic would be the truly metaphysical questions presented by that case law. The questions no longer revolve around how many angels "can dance on the head of a needle" but rather: "Are any debts discharged at the time an order is entered stating `all dischargeable debts are discharged' and said order is proclaimed in a forest where no one is listening?"
The case law in this area is simply incomprehensible to most non-bankruptcy professionals, including state court judges1, due to certain counterintuitive features of the bankruptcy law, and more importantly the ethereal nature of when a debt "is discharged" when a general discharge order under § 727 of the Bankruptcy Code is entered by a bankruptcy court.
By Orders dated February 16, 1996 (except In re Caldwell, which was entered on March 22, 1996) issued in each of the above-captioned cases, this Court granted the motions to reopen.2 In each case, the motion was taken for submission after hearing to be decided together under a common legal issue. This Memorandum Opinion sets forth the reasoning and legal authority supporting the Orders.
The general discharge order (Official Form No. 18), issued pursuant to Bankruptcy Code § 524 provides as follows:
Logicians, whether medieval or not, will recognize that paragraph 1 of this form order is a perfect tautology. The order discharges a particular debt only if it is later determined somewhere that no ground for nondischargeability under § 523 of the Bankruptcy Code exists as to that debt3. While technically accurate, it leads to confusion and muddled analysis to refer to debts being discharged at the moment of entry of the general discharge order4.
There are ten no-asset chapter 7 cases pending before the Court (as captioned above) that address this issue. Although each case has its own particular factual idiosyncrasy, each is a no-asset chapter 7 case which has been closed and came before the Court on a motion to reopen to add a previously omitted creditor. In none of these cases has the creditor involved, who received notice of the hearing on the motion to reopen, objected or raised any question as to any impropriety in the original omission of its debt from the schedules, or asserted that it was prejudiced by the delay. From my own review of the files and the debtors' explanations of the omissions, I can and do find that the failure to list the creditor or creditors involved in each case was an innocent mistake and entirely unintentional.
A brief summary of the individual cases is as follows:
In re Peter L. Walker
On May 10, 1993, the debtor filed a no-asset chapter 7 petition. The debtor listed $16,203 in assets and $74,663 in liabilities in his schedules. As in all no-asset chapter 7 cases, the unsecured creditors were instructed not to file a proof of claim5. Fed. R.Bankr.P. 2002(e). On June 18, 1993, the trustee filed a report of no distribution6 and on October 27, 1993, a general discharge order was entered and the case was closed.
Two years later the debtor was served with a complaint for $5,114.48 plus attorney's fees, interest and costs from a trade creditor for amounts owing on six unpaid invoices. Of the total amount allegedly due, $4,601.78 arose prepetition. The debtor contends that prior to receipt of the complaint in the state court action, he had not received any invoices or other notice of the creditor's claim. The debtor has raised as a defense in the Maine state action that the alleged debt was discharged in his bankruptcy case. As of February 16, 1996 there had been no hearings in the state court case.
On April 25, 1995, the debtor filed a motion with this Court asking that the bankruptcy case be reopened and the schedules amended to include this creditor. There has been no objection to the debtor's contention that the omission of this creditor was inadvertent. After appropriate briefing and a hearing, the Court took this matter under submission on June 8, 1995.
On October 14, 1993, the debtors filed a no-asset chapter 7 petition. The debtors filed their schedules on November 15, 1993 and listed $84,650 in assets and $189,408.69 in liabilities. The trustee filed a report of no distribution which was approved by the Court. A general discharge order was entered on March 23, 1994 and the estate was closed that same date. On June 16, 1995, the debtors filed a motion to reopen the bankruptcy case to add The Cadle Company as a creditor, which was heard on August 17, 1995. The obligation owed to The Cadle Company arises from a Promissory Note and Mortgage dated January 19, 1990 in the original face amount of $182,000 in favor of St. Mary's Bank. The bank foreclosed on the property securing the loan on or about June 7, 1991. The debtors assert that they were unaware there was a deficiency balance on the obligation.
The obligation was assumed by The Cadle Company which filed an action against the debtors in the Hillsborough County Superior Court alleging that the debt was not discharged by the bankruptcy because it was not listed in the debtors' schedules. (See Hillsborough County Superior Court, Northern District, Docket No. C-94-864). The debtors defaulted and judgement was entered for the plaintiff on March 13, 1995. The plaintiff filed a motion for weekly payments which was scheduled for hearing in the state court on June 14, 1995. At that hearing, counsel notified the state court judge that a motion to reopen the bankruptcy case to add The Cadle Company as a creditor would be filed in the bankruptcy court and both the debtors and creditor requested that the state court action be held in abeyance until a decision was issued in the bankruptcy court. As of February 16, 1996, there had been no action in the state court case. The creditor did not object to the debtors' motion to reopen.
The debtors, Dean and Elaine Gould, filed a petition for chapter 7 bankruptcy relief on September 6, 1994. The debtors listed $43,728 in assets and $75,850 in liabilities in their schedules. The trustee filed his report of no assets on September 16, 1994. The Court entered a general discharge order in the no-asset case on February 24, 1995 and the case was closed that same date.
At the time the bankruptcy petition was filed, American Frozen Foods...
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