Court Denied Debtor’s Motion to Reopen Case to Add Omitted Creditors since it would be Futile and a Waste of Judicial Resources

Court Denied Debtor’s Motion to Reopen Case to Add Omitted Creditors since it would be Futile and a Waste of Judicial Resources

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.

On June 5, 2017, the debtor filed a “bare-bones” petition for relief under Chapter 7 of the Bankruptcy Code, paid the filing fee, and filed a list of creditors.  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. 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.

Fourteen days after filing his petition, on June 19, 2017, the debtor filed the balance of his schedules and statements. 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.  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. The debtor’s bankruptcy case was closed at 10:58 AM that same day.

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. 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.  Thereafter, the debtor filed the motion to reopen this case.

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. Ashleigh Gerber sent a letter to the Court objecting to the reopening to add her debt to the bankruptcy case.  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  inspector and his certifications to perform services allegedly performed for her.

The debtor through counsel then scheduled the hearing on the motion to reopen.  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.

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