Court used FRBP 9006, Not Equitable Power, to Strike Debtors’ Amended Schedules (which had Exempted Previously Undisclosed Lawsuit)

Court used FRBP 9006, Not Equitable Power, to Strike Debtors’ Amended Schedules (which had Exempted Previously Undisclosed Lawsuit)

This matter comes before the court on the Chapter 7 trustee’s motion for reconsideration of an order overruling her objection to Debtors’ amended exemptions.

The Debtors filed a voluntary Chapter 7 petition on June 12, 2014. Less than two years prior to that, Monica Paylor filed a personal injury lawsuit. The Debtors did not disclose the lawsuit in their schedules or Statement of Financial Affairs. The Chapter 7 trustee filed a report of no distribution, and the case was closed in November 2014.

In January 2017, the one of the Debtors executed a Settlement Statement regarding the personal injury action that reflected an anticipated net recovery to her of $19,642.63. The Debtors did not inform the Trustee of the settlement or amend their schedules. In March 2017, a third party brought the settlement to the attention of the Trustee, who moved to reopen the bankruptcy case. Four months after the Trustee filed her motion to reopen the case, the Debtors filed amended schedules listing the personal injury suit as an asset and claiming an exemption in the proceeds of the lawsuit in the full amount of the anticipated recovery. Ultimately, the Trustee was able to settle the lawsuit for a net recovery to the estate of $37,817.63. A month after the Trustee noticed the settlement, the Debtors filed another amended Schedule C asserting an exemption in the personal injury claim of $35,700. The Trustee objected to the amended exemption, but the court overruled the objection. The Trustee asks for reconsideration of that ruling.

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