In re Sievert

634 B.R. 1030

IN RE: Christine M. SIEVERT, Debtor.

Case Number: 17-10960-7

United States Bankruptcy Court, W.D. Wisconsin.

Signed October 27, 2021

Parrish J. Jones, Attorney, Torvinen, Jones, Routh & Saunders, S.C., Superior, WI, Trustee.

Urosh Piletich, Piletich & Skokan, P.A., Stillwater, MN, for Debtor.

Tiffany E. Rodriguez, Office of the United States Trustee, Madison, WI, for U.S. Trustee.

DECISION

Hon. Catherine J. Furay, U.S. Bankruptcy Judge

Upon the consent of the parties and in recognition that no facts are in dispute, this contest over the Debtor's claim to an amended exemption in a personal injury award is submitted on briefs. The facts are summarized below. Sievert saw a TV ad about a possible lawsuit against Essure and sent an email in response to the ad. In the fall of 2016 she completed an application to employ a law firm to represent her in that lawsuit. She did not disclose this asset. After receiving a discharge, her case was closed. About 3-1/2 years later, her case was reopened. Then she filed an amendment to exempt any recovery from this claim. The Trustee objected. For the reasons stated, the Trustee's objection is SUSTAINED.

FACTUAL BACKGROUND

Sievert filed a voluntary chapter 7 petition and schedules¹ in March 2017. She received a discharge in July of that year.² She did not disclose the personal injury claim at any time before her discharge. In late 2017, Sievert received notice that a lawsuit against Essure was filed in California and that she was part of it. She took no action to report this to her attorney, the Court, or the Trustee, Parrish Jones ("Jones").

Jones learned about the lawsuit in February 2021. He received a letter telling him that a settlement in the lawsuit had been reached and asking whether the funds would be claimed as part of the bankruptcy estate.³ The United States Trustee ("UST") moved to reopen the case and appoint a trustee because of this previously undisclosed asset.⁴ The motion was granted.⁵

Five months later, Sievert amended her Summary of Assets and Liabilities, Schedule A/B, and Schedule C to disclose the lawsuit for the first time.⁶

Jones objects to Sievert's claim of exemption as untimely.⁷ He argues Sievert retained counsel for the personal injury suit before filing bankruptcy and did not include the suit in her schedules. Jones also points out that Sievert answered "No" to the question on her Schedule A/B regarding "Claims against third parties, whether or not you have filed a lawsuit or made a demand for payment. Examples: Accidents, employment disputes, insurance claims, or rights to sue." Since Sievert retained counsel before filing her bankruptcy, Jones argues she cannot show she was not on notice of any right to sue, injury, defect, or damage before or throughout the bankruptcy. Further, Jones notes that there was substantial delay between the reopening of her bankruptcy and the date on which she filed the amendments. So he concludes Sievert should not be allowed to amend her schedules to exempt any award from her personal injury suit against Essure.

Sievert says she did not know she had a claim. Nor did she think she had retained counsel for the personal injury claim by sending an email in response to a TV ad. But she does not explain having signed a retainer agreement in connection with the lawsuit. No explanation for the failure to report the lawsuit in late 2017 has been provided. Nor does she explain the reason for a four-month delay in amending the schedules. She simply says her previous experience with personal injury lawsuits was very different. She says she did not intentionally fail to disclose the lawsuit. Based on her experience and what she believed, she says her failures should constitute "excusable neglect" and she should be allowed to amend her schedules to disclose and exempt the claim.

APPLICABLE RULES

Fed. R. Bankr. P. 1009

(a) General Right to Amend. A voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. The debtor shall give notice of the amendment to the trustee and to any entity affected thereby. On motion of a party in interest, after notice and a hearing, the court may order any voluntary petition, list, schedule, or statement to be amended and the clerk shall give notice of the amendment to entities designated by the court.

Fed R. Bankr. P. 9006

(b) Enlargement.

(1) In General . Except as provided in paragraphs (2) and (3) of this subdivision, when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.

JURISDICTION

This Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 157 and 1334(a). Matters involving the administration of the estate and resolution of objections to exemptions are core proceedings. The matters arise directly from Sievert's bankruptcy and from the Code. 28 U.S.C. § 157(b)(2)(A), (B).

DISCUSSION

Filing a bankruptcy petition creates an estate. It includes all of the debtor's property. 11 U.S.C. § 522(b)(1). To claim exemptions in property, debtors must list such property, as well as the amount of and the basis for the exemption, on their Schedule C that is required to be filed within 14 days of the filing of their bankruptcy petition. See Fed. R. Bankr. P. 1007(b)(1)(A), (C). And debtors may amend such schedules "as a matter of course at any time before the case is closed." Fed. R. Bankr. P. 1009(a).

Bankruptcy schedules filed with a court are prepared and signed under penalty of perjury. A debtor has duties imposed by the Code. 11 U.S.C. § 521. Among a debtor's duties is the duty to "cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties." 11 U.S.C. § 521(a)(3). In a chapter 7, the duties of a trustee include the duty to "collect and reduce to money the property of the estate" and "investigate the financial affairs of the debtor." 11 U.S.C. § 704(1), (4).

At issue is the Debtor's claim of exemption in the settlement proceeds from a pre-petition personal injury claim under the applicable Wisconsin law. Jones does not dispute that the settlement proceeds fall within the scope of the Wisconsin exemption statute. Rather, his objection is based on his interpretation of the case-closure language in Federal Rule of Bankruptcy Procedure 1009(a) to mean that Sievert cannot, automatically, amend her claim of exemptions after the case was originally closed—even though the case has been reopened.

Generally, debtors may amend their schedules "at any time before the case is closed." Fed. R. Bankr. P. 1009(a). While some courts have found that the rule does not distinguish between an open case and a reopened case, others have determined such distinction does exist.

Courts take three approaches to this issue. The approaches turn on how the Federal Rules of Bankruptcy Procedure ("Rules") are interpreted. The strictest approach imposes an absolute bar on certain amendments in reopened cases. The broadest approach applies Rule 1009(a) equally to open or reopened cases. The middle approach applies Rule 9006(b)(1). Both parties’ submissions address the standard used in the middle approach.

Finding a debtor can never amend schedules once a case is closed would ignore the duties imposed on a debtor by the Code to disclose assets. Finding a debtor has an unfettered right to amend in a reopened case renders the phrase "any time before the case is closed" meaningless. Thus, the appropriate reading is that Rule 1009 no longer controls once a case is closed.

When a case is closed, the liberal right to amend ends by the plain language of Rule 1009(a). See In re Bartlett , 326 B.R. 436, 438-39 (Bankr. N.D. Ind. 2005). And while some courts have interpreted the phrase broadly, drawing no distinction between an open case and a reopened case, "[s]uch a circular interpretation would render the rule's limitation completely illusory and, therefore, meaningless." Id. at 439. It is true that nothing in Rule 1009 prohibits amendments to schedules in reopened cases. But the lack of any reference to such a circumstance must not be equated with some tacit approval by the legislature. "If the drafters had wanted to allow amendments [as a matter of course] ‘at any time,’ ‘at any time the case is open,’ or ‘unless the case is closed,’ they would have said so." Id. Unless this Court is to ignore the plain language of Rule 1009, the Debtor's right to amend her Schedule C automatically ended when this case closed on July 14, 2017.

This Court is persuaded by the reasoning of the courts that apply the middle approach and holds that Rule 9006(b)(1) governs the ability of a debtor to amend schedules in a reopened case. Debtors do not have an absolute right to amend schedules in reopened cases but may amend if the debtor shows "excusable neglect" as provided by Rule 9006(b)(1). See In re Awan , Case No. 13-71508, 2017 WL 4179816 (Bankr. C.D. Ill. Sep. 20, 2017) ; In re Poulette , 493 B.R. 729 (Bankr. D. Md. 2013) ; In re Benjamin , 580 B.R. 115 (Bankr. D.N.J. 2018) ; Moretti v. Bergeron (In re Moretti) , 260 B.R. 602 (B.A.P. 1st Cir. 2001). Courts using the middle approach find the phrase "before the case is closed" renders Rule 1009 inapplicable in reopened cases and Rule 9006(b)(1) to be the appropriate standard for determining whether such amendments should be allowed.

So the Court must consider whether Rule 9006(b)(1) provides a standard through which Sievert can amend schedules in a reopened case. This Rule permits the Court, for...