In re Rollison

579 B.R. 67

IN RE: Chance S. ROLLISON, Debtor.

Case No. 17–61097

United States Bankruptcy Court, W.D. Virginia, Lynchburg Division.

Signed January 19, 2018

Graham T. Jennings, Jr., Powhatan, VA, for Debtor.

CORRECTED MEMORANDUM OPINION

Rebecca B. Connelly, U.S. Bankruptcy Judge

In this case, the Court must answer whether to reopen a closed chapter 7 no-asset bankruptcy case to allow the debtor to amend his schedules to add two creditors, whom the debtor had not scheduled or noticed during his case. For the reasons stated below, the Court denies the debtor's motion.

FINDINGS OF FACT

On June 5, 2017, the debtor filed a "minimum filing"¹ petition for relief under Chapter 7 of the Bankruptcy Code, paid the filing fee, and filed a list of creditors. See ECF Doc. Nos. 1, 4. The debtor listed 16 names and addresses on the list of creditors.

On June 6, 2017, the Court issued the Notice of Chapter 7 Bankruptcy Case containing the deadline to object to dischargeability of a debt and the date, time, and place of the meeting of creditors.² The Court provided the notice containing these deadlines to the 16 creditors on the debtor's list of creditors. See Fed. R. Bankr. P. 2002 ; ECF Doc. No. 9.

Fourteen days after filing his petition, on June 19, 2017, the debtor filed the balance of his schedules and statements. See ECF Doc. No. 11. In the balance of schedules, the debtor disclosed 18 names and addresses for creditors and parties to be notified and a total unsecured debt of $9061.65. The debtor certified under penalty of perjury the accuracy of these disclosures. Two days later, counsel for the debtor filed an amendment to the creditor matrix to add the two creditors who were listed in the balance of schedules but not on the original list of creditors, the Internal Revenue Service ("IRS") and Ford Motor Credit Company, LLC, and certified that he simultaneously sent them a copy of the Notice of Bankruptcy and Notice of the Meeting of Creditors.

The next month, on July 19, 2017, the chapter 7 trustee filed her Report of No Distribution. See ECF Doc. No. 16. After that the debtor filed his certification of completion of financial management education, and thereafter on September 19, 2017, the Court entered the discharge order.³ See ECF Doc. No. 17, 18. The debtor's bankruptcy case was closed at 10:58 AM that same day. See ECF Doc. No. 19.

After having received his discharge and after his case was closed by the Court, the debtor attempted to file more amended schedules and another amended creditor matrix form.⁴ In these documents, the debtor disclosed Ashleigh Gerber as an unsecured creditor for an undisputed debt in the amount of $8733.00 incurred on November 15, 2016, described as "Judgment." He also disclosed a debt to Leonard Sanberg in the amount of $8817.50 incurred on June 1, 2017, also described as "Judgment." Each of these debts are owed to individuals who were in litigation with the debtor in the months prior to the bankruptcy and who obtained judgments against the debtor prior to the bankruptcy. When the debtor filed bankruptcy on June 7, 2017, he failed to provide either of these individuals with notice of the Meeting of Creditors and the deadline to object to dischargeability of their debts or object to his general discharge.

The Court issued an order of deficiency instructing the debtor that no action may be taken on the filed documents because the case was closed. See ECF Doc. No. 24. Thereafter, the debtor filed the motion to reopen this case. See ECF Doc. No. 27.

In the notice accompanying his motion to reopen, counsel for the debtor included a statement which told creditors they had until October 23, 2017, to file an objection to the reopening and that if an objection was filed, a hearing would be scheduled. See ECF Doc. No. 27. Ashleigh Gerber sent a letter to the Court objecting to the reopening to add her debt to the bankruptcy case. See ECF Doc. No. 29. In her letter, she alleged the debt was as a result of fraud. She also alleged the debt was as a result of the debtor's false representation about his identity as a licensed Henrico County inspector and his certifications to perform services allegedly performed for her.⁵

The debtor through counsel then scheduled the hearing on the motion to reopen. See ECF Doc. No. 31. At the hearing, on November 16, 2017, counsel for the debtor and the debtor appeared. Ms. Gerber did not appear at the hearing.

At the hearing, counsel for the debtor described that he filed the petition as a "bare-bones" filing to obtain emergency relief from a garnishment by one of the other creditors in the case (Ford Motor Credit Company, LLC). Counsel stated that the two omitted creditors were listed in the statement of financial affairs (contained in the balance of schedules filed 14 days after the initial petition), but were inadvertently excluded from the creditor matrix. Therefore, the two omitted creditors did not receive notice of the bankruptcy. Counsel represented that he did not discover the error until after the case had closed. This means the debtor disclosed only about a third of his total unsecured debt in his bankruptcy. He scheduled unsecured debt totaling $9061.65 but left out additional unsecured debt totaling $17,550.50.

In the bankruptcy case, the trustee determined no assets were available for distribution to creditors. For this reason, during the pendency of the case, the Court did not establish a deadline to file proofs of claim.

At the hearing on the motion to reopen, the debtor requested the Court reopen the case to add the unscheduled creditors. Counsel for the debtor explained the reopening was necessary so that he could defend Ms. Gerber's collection actions (specifically garnishment proceedings). In other words, the debtor wants this Court to clarify that the discharge injunction applies to Ms. Gerber and Mr. Sanberg. See 11 U.S.C. § 727.⁶

JURISDICTION

The Court has jurisdiction over this bankruptcy case by virtue of the provisions of 28 U.S.C. §§ 1334(a) and 157(a), the delegation made to this Court by Order of Reference from the District Court entered on December 6, 1994, and Rule 3 of the Local Rules of the United States District Court for the Western District of Virginia. The decision to reopen a bankruptcy case is a "core" proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A).

CONCLUSIONS OF LAW

Reopening

Bankruptcy Code section 350(b) provides that a closed case "may be reopened ... to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). In analyzing this provision, the Fourth Circuit has adopted a discretionary approach to reopening, allowing the court to consider the totality of the circumstances in each particular case. See Hawkins v. Landmark Fin. Co. (In re Hawkins) , 727 F.2d 324, 326 (4th Cir. 1984) ; In re Jones , 367 B.R. 564, 567 (Bankr. E.D. Va. 2007). With that in mind, bankruptcy courts in Virginia have held that a court should reopen a case "only upon a showing of compelling circumstances." In re Mutts , 131 B.R. 306, 307 (Bankr. E.D. Va. 1991). At bottom, a court should not reopen a case "where it appears that to do so would be futile and a waste of judicial resources." In re Carberry , 186 B.R. 401, 402 (Bankr. E.D. Va. 1995). Although the Court has discretion in reopening a case for cause, the burden of establishing that cause exists is on the party seeking the reopening. In re Hardy , 209 B.R. 371, 374 (Bankr. E.D. Va. 1997).

Mr. Rollison seeks to reopen to add the creditors so that they will be subject to the discharge injunction.⁷ Debtor's counsel appeared to concede that if the debts are of the kind described in section 523(a)(2), (4), or (6), the debts are not discharged. Counsel urged the Court to either hear his defenses or to schedule a deadline by which the creditor must take action in the bankruptcy court to determine the dischargeability of the debt.

Because the Court must first reopen the case, the Court declined to hear the arguments of counsel regarding the nature of the unscheduled debts and declined to set a deadline for the unscheduled creditors to object to dischargeability. See In re Jones , 367 B.R. 564, 567 (Bankr. E.D. Va. 2007) ("In considering a motion to reopen, the court should generally avoid ruling on the merits of the underlying matter to be considered, thereby forcing the debtor to prove his case twice."). To reopen requires the Court to be satisfied that it will not be a futile exercise. This means the court must determine, at this juncture, whether the debtor has met his burden to establish cause to reopen.

Discharge of unlisted debts in a no-asset chapter 7 case

The Bankruptcy Code provides a mechanism that answers the question of what happens to debts that are not listed or scheduled by a debtor in his bankruptcy case. Section 727(b) provides that "[e]xcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter." 11 U.S.C. § 727(b). Section 523 excepts from the 727 discharge debts

(3) neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit—

(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or

(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request; ....

11 U.S.C. § 523(a)(3). Because of the language of sections 523 and 727, courts have held that a debt may be discharged in a no-asset chapter 7 case, even if...