Judd v. Wolfe
| Decision Date | 11 March 1996 |
| Docket Number | No. 95-5141,95-5141 |
| Citation | 78 F.3d 110 |
| Parties | , 28 Bankr.Ct.Dec. 981, Bankr. L. Rep. P 76,994 Susan JUDD, Appellant, v. Lawrence WOLFE, Susan Judd, Debtor. |
| Court | U.S. Court of Appeals — Third Circuit |
Appeal from the United States District Court for the District of New Jersey (D.C.Civ. No. 94-cv-05574).
Joseph M. Pinto (argued), Joseph F. Polino, P.C., Moorestown, NJ, for Appellant.
George H. Hulse (argued), Hulse & Germano, Burlington, NJ, for Appellee.
Before STAPLETON, MANSMANN and LEWIS, Circuit Judges.
Debtor Susan Judd appeals from a decision of the district court, affirming the bankruptcy court's denial of her motion to reopen her bankruptcy case pursuant to 11 U.S.C. § 350(b). Judd sought to reopen her no-asset Chapter 7 bankruptcy case for the sole purpose of amending her schedules to add a creditor whose name had been omitted.
We are confronted with a question of first impression for us: if a debtor, in a Chapter 7, no-asset, no-bar date bankruptcy proceeding fails to list a claim on its schedule of creditors and the bankruptcy case is closed, is the debt nonetheless discharged pursuant to 11 U.S.C. §§ 727(b) and 523(a)(3), or must the debtor move the bankruptcy court, pursuant to 11 U.S.C. § 350(b), for an order reopening the closed proceeding to add the omitted creditor for the purpose of discharging the claim?
We hold that in a no-asset, no-bar date case, dischargeability is unaffected by scheduling. After a case is closed, the debt in question was either discharged or excepted from discharge based on sections 523 and 727(b). Therefore, the filing of a motion to reopen is not necessary to discharge the debt if the statutory exceptions to discharge do not apply.
Susan Judd and Lawrence Wolfe were married on December 27, 1985. They separated on January 15, 1990 and subsequently were divorced on April 26, 1991.
After the parties separated, Judd remained in the marital home. On December 24, 1990, pursuant to Article 2, Paragraph 2.2 of the Property Settlement Agreement incorporated into their Final Judgment of Divorce, Wolfe executed a quitclaim deed which conveyed the marital home at 127 E. 7th Street, Burlington, New Jersey, to Judd. Judd agreed to assume responsibility to pay the outstanding mortgage and to indemnify Wolfe in the event that he had to make any payments on the mortgage. 2 Judd continued to pay the monthly mortgage payments on the home until February, 1993. On February 22, 1993, financial circumstances caused Judd to file a Chapter 7 petition in bankruptcy. Judd's Chapter 7 petition listed the home at 127 E. 7th Street as an asset on Schedule "A" of the petition, with a fair market value of $93,000.00, subject to a secured claim of $92,014.75. The first mortgagee on the property, Mortgage Access Corporation, was listed under Schedule "D" of Judd's petition as a secured creditor with a claim of $92,014.75. Due to the fact that Wolfe was also obligated on the mortgage, this debt--listed as a home mortgage--was listed as a joint debt on Schedule "D" of Judd's petition. Although her attorney listed the debt as a joint debt on Schedule "D" of the bankruptcy petition, he did not list Wolfe as a creditor or co-debtor. Because she had no other assets available for distribution to her creditors in bankruptcy, no bar date was set by the court establishing a deadline for creditors to file proofs of claim.
On February 25, 1993, after reviewing Judd's Chapter 7 petition, the Bankruptcy Court Clerk, in accordance with the applicable rules, notified the creditors listed in Judd's schedules of the date set for the meeting of creditors and the last day for the filing of complaints to determine the dischargeability of debts pursuant to 11 U.S.C. § 523(c). In accordance with Bankruptcy Rule 2002(e), no deadline for filing claims was set; rather, creditors were notified that it was unnecessary to file claims as there were no assets to distribute. However, in accordance with Bankruptcy Rule 4007(c), a deadline for filing complaints pursuant to 11 U.S.C. § 523(c) to determine the dischargeability of certain debts was set. This deadline of May 25, 1993, passed without any complaints being filed. On April 29, 1993 the trustee abandoned his interest in the marital home. On July 14, 1993, Judd received a Discharge in Bankruptcy. On July 16, 1993, Judd's case was closed.
In March, 1994, after Judd's bankruptcy case was closed, the first mortgagee, Mortgage Access Corporation, filed a complaint in foreclosure listing both Judd and Wolfe as defendants. Subsequently, Wolfe sought indemnification from Judd pursuant to their property settlement. 3 Accordingly, on August 15, 1994, Judd filed a motion to reopen her Chapter 7 proceedings so that she could list Wolfe as a creditor and discharge her obligation to him. In his August 31, 1994, opposition, Wolfe alleged that he learned for the first time in July, 1994, that Judd had filed for bankruptcy, that she had not paid the mortgage for over one and one-half years, and that a complaint in foreclosure had been filed. According to Wolfe, despite the facts that Judd lives within a couple of miles of him, knows where he lives, has been to his home, knows where he works and knows his phone number, she never communicated anything to him regarding either her failure to make mortgage payments since January 1993 or the filing of the foreclosure suit. 4
Wolfe opposed Judd's motion to reopen on the grounds of unfair prejudice. Wolfe's primary concern was that his credit worthiness would be harmed as a result of Judd's failure to pay the mortgage. In addition, he was concerned that he would be liable for any deficiency at a foreclosure sale. Wolfe opined that if he had been listed as a creditor initially, he would have received notice of the bankruptcy and could have taken steps at that time to take over the property, pay the mortgage, avoid additional interest and penalties and avoid any damage to his credit. 5
On September 12, 1994, finding that Wolfe had demonstrated that he would be prejudiced by a reopening, the bankruptcy court denied Judd's motion to reopen. 6 The bankruptcy court subsequently denied Judd's motion for reconsideration filed pursuant to Local Bankruptcy Rule 3(b) and F.R.B.P. 8002(b). 7
On appeal to the United States District Court, the court affirmed the bankruptcy court's order denying Judd's motion to reopen. In its decision, the district court did not reach the question of whether the debtor's obligations to Wolfe had been or should be discharged, after deciding that that question was not properly before the court. (JA 41).
The district court had jurisdiction pursuant to 28 U.S.C. § 158(a)(1) and (c). We have jurisdiction pursuant to 28 U.S.C. § 158(d).
We begin with an examination of the scope of the discharge Judd received from the bankruptcy court. Section 727(b) of the Bankruptcy Code defines the scope of a Chapter 7 debtor's discharge: "Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharged the debtor from all debts that arose before the date of the order for relief under this chapter...." 11 U.S.C. § 727(b). (Emphasis added.) As other courts have observed, "The operative word in this section is 'all.' " In re Beezley, 994 F.2d 1433, 1435 (9th Cir.1993) (). Because section 727(b), on its face, does not create an exception for unlisted or unscheduled debts, every prepetition debt is discharged under section 727(b) subject to the provisions of section 523(a)(3). We thus turn to section 523(a)(3).
Section 523(a)(3) creates two categories of unscheduled debts: (1) those that are "of a kind specified in paragraphs (2), (4), or (6) of this subsection," and (2) those that are not of such kind. 8 Those debts that are not of the kind specified in paragraphs (2), (4), or (6) of section 523(a) are resolved by reference to section 523(a)(3)(A).
Section 523(a)(3)(A) excepts from discharge certain debts that were:
Neither listed nor scheduled ... in time to permit ... timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing....
Because this is a "no-asset" Chapter 7 case, the time for filing a claim has not, and never will, expire unless some exempt assets are discovered; thus, section 523(a)(3)(A) cannot be applied in Judd's circumstances. See Stone v. Caplan, 10 F.3d 285, 289, n. 13 (5th Cir.1994) (). Because section 523(a)(3)(A) does not apply here, Judd's debt to Wolfe was discharged by operation of law at the time of her discharge on July 14, 1993, unless her debt to Wolfe falls under sections 523(a)(2), (4), or (6).
Debts listed in sections 523(a)(2), (4) and (6) describe debts which arise from intentional torts such as fraud. They include debts incurred by "false pretenses, false representation or actual fraud ... " (523(a)(2)); debts incurred by "fraud or defalcation while acting as a fiduciary ..." (523(a)(4)); and debts "for willful and malicious injury ..." (523(a)(6)). Section 523(a)(3)(B) excepts from discharge "intentional tort" debts that were not listed. Since section 523(c) provides that the dischargeability of these debts must be determined by the bankruptcy court and Bankruptcy Rule 4007(c) requires a complaint to be filed before the discharge is entered, section 523(a)(3)(B) preserves the right...
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