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In re Fred Maxey CLONINGER III

United States Bankruptcy Court for the Eastern District of Arkansas1997-05-29No. Bankruptcy No. 95-41389 S
209 B.R. 125

Summary

Holding. The court denied the creditor's motion to reopen the bankruptcy case because he failed to demonstrate cause for reopening and had no viable grounds under which to challenge the dischargeability of the debt; the court also denied the debtor's motion for sanctions because the creditor had obtained relief from the stay before proceeding in state court.

A creditor sought to reopen a closed Chapter 7 bankruptcy case three months after the debtor received a discharge. The creditor wanted to challenge the dischargeability of a debt owed to him. The creditor had received notice of the bankruptcy and participated in the proceedings, and the court had granted him multiple extensions to file objections to discharge, with the final deadline being December 21, 1995. The creditor filed an additional extension request one day after that deadline expired and never filed any complaint objecting to the debt's dischargeability either before or after the case closed.

The court denied the motion to reopen because the creditor failed to demonstrate any valid cause for reopening. The creditor identified no grounds under the applicable bankruptcy statute that would support a finding that the debt was nondischargeable, and all time periods for filing such objections had long since passed. Although the creditor had obtained a judgment against collateral in state court after securing relief from the automatic stay, this did not provide grounds to reopen the bankruptcy case or to challenge the discharge that had already been entered. The court also denied the debtor's request for sanctions, finding that the creditor's state court judgment against the collateral was permissible.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

  • Standard for reopening a closed bankruptcy case under section 350(b)
  • Whether a creditor may challenge dischargeability after applicable filing deadlines have expired
  • Effect of relief from stay on a creditor's ability to pursue collateral in state court

Procedural posture

The bankruptcy court considered a creditor's motion to reopen a Chapter 7 case that had been closed following the debtor's discharge, filed three months after entry of the discharge order.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion

majority opinion

ORDER DENYING MOTION TO REOPEN

MARY DAVIES SCOTT, Bankruptcy Judge.

THIS CAUSE is before the Court upon John J. Hamilton, Ill’s, Motion to Reopen Chapter 7 Petition, filed on December 9, 1996, and the debtor’s Motion for Sanctions, filed on or about December 16, 1997. This bankruptcy case was filed on May 19, 1995. The first meeting of creditors, held pursuant to 11 U.S.C. § 341(a) was scheduled for June 20, 1995, with Hamilton’s attorney attending. The meeting was continued to July 11, 1995, and again rescheduled for August 22, 1995. It was not until December 15, 1995, however, that the debtor appeared at a section 341(a) meeting. Hamilton was present at that meeting, representing himself. There is no dispute that Hamilton received notice of the bankruptcy case and, in fact, has participated in these proceedings. Thus, it is undisputed that Hamilton had knowledge of the case. See 11 U.S.C. § 523(a)(3).

The last date to file a complaint objecting to the dischargeability of a debt or to debt- or’s discharge was August 21,1995. Fed. R. Bankr.Proe. 4004, 4007. Hamilton filed a motion to extend the time for filing objections to discharge on August 21, 1995, which motion was granted to September 21, 1995. A second extension was granted to October 21, 1995, and a third “up to and including December 21, 1995.” Accordingly, any complaint to object to the debtor’s discharge, or motion requesting an extension of that deadline, was required to be filed by that date, a Thursday. On Friday, December 22, 1995, one day past the deadline, Hamilton filed another Motion to Extend Time to File Objection to Discharge, an action under section 727 of the Bankruptcy Code. No creditor, including Hamilton, ever requested an extension of time to file a complaint objecting to the dischargeability of a debt. Hamilton never filed either a complaint objecting to discharge under section 727(a) or a complaint to determine the dischargeability of a debt under section 523(a).

On August 31, 1995, Hamilton filed a motion for relief from stay, apparently to proceed against collateral securing a debt owed to Hamilton. An order prepared by Hamilton’s attorney was submitted lifting the automatic stay and permitting Hamilton to proceed in state court against the collateral securing the debt. Apparently, Hamilton obtained an in rem judgment against the property on September 9, 1996. The debtor received a discharge on September 4, 1996. The motion to reopen, filed three months later, seeks to reopen the case to adjudicate the dischargeability of the creditor Hamilton’s judgment. Although the motion does not reference the appropriate Code section, the court notes that dischargeability determinations are made pursuant to section 523(a)(3). The debtor responded to the motion and seeks sanctions against Hamilton for violating the discharge injunction in obtaining the judgment in state court.

Bankruptcy Code section 350(b) provides that a case “may be reopened in the court in which such case was closed ... to accord relief to the debtor, or for other cause.” Section 350(b) is not mandatory, but is within the discretion of the Bankruptcy Court. In re Rhodes, 88 B.R. 199, 200 (Bankr.E.D.Ark.1988). It is the movant’s burden to demonstrate that cause exists for the reopening of a case. In re Winburn, 196 B.R. 894, 897 (Bankr.N.D.Fla.1996). Hamilton has shown no cause for reopening this case. While he seeks to determine the dischargeability of the debt, it is clear from the record that the debt was discharged and that there are no grounds, either asserted or existing, that the debt still exists. If it does exist, it was discharged when the discharge of debtor was filed and entered.

First, Hamilton states no grounds by which to contest the dischargeability of the debt. This failure alone is a failure to meet his burden of demonstrating cause to reopen the case. Second, there are no grounds outlined in section 523(a) under which Hamilton could conceivably proceed. The time to file a complaint objecting to dischargeability of a debt under section 523(a)(2), (4), or (6), has long passed. 11 U.S.C. § 523(c); Fed. R. Bankr.Proe. 4007. Moreover, the ability to proceed under any of these subsections cannot be resurrected pursuant to section 523(a)(3) because the debt was listed and Hamilton indisputably had knowledge of the bankruptcy proceedings. There is not presented, nor does there appear to exist, any means by which this debt could be held to be nondischargeable in the bankruptcy proceeding. Accordingly, there is no cause to reopen the case in order for Hamilton to file a complaint to determine the dischargeability of the debt.

The debtor requests sanctions on the basis that Hamilton proceeded improperly by obtaining a judgment in state court in violation of the discharge injunction. However, Hamilton specifically sought and obtained relief from stay to proceed in state court. Further, although debtor’s personal liability for the debt was discharged, an in rem judgment against the collateral was proper. Personal liability for a deficiency, if any, cannot now be collected and it is too late to litigate dischargeability. Based upon the foregoing, it is

ORDERED as follows:

1. John J. Hamilton, Ill’s, Motion to Reopen Chapter 7 Petition, filed on December 9,1996, is DENIED.

2. The debtor’s Motion for Sanctions, filed on or about December 16, 1997, is DENIED.

IT IS SO ORDERED.

. Hamilton was initially represented by counsel who attended some of the scheduled first meetings. Later, Hamilton filed motions pro se. He is represented by counsel in this contested matter.

. Although the Order references a motion for relief from stay filed on December 12, 1995, there is no such motion in the court file.