BASIL H. LORCH, Judge, United States Bankruptcy Court.
This matter came before the Court on the Defendant's Motion for Summary Judgment filed on June 12, 2000. Plaintiff's Response to Defendant's Motion for Summary Judgment was filed on August 11, 2000, and a Reply Brief in Support of Motion for Summary Judgment was filed on August 18, 2000. The Court heard oral argument on the foregoing motion on August 21, 2000.
The Court, having reviewed the foregoing pleadings, and being otherwise fully and sufficiently advised, finds that there is no genuine issue of material fact in dispute. The Defendant's Motion for Summary Judgment is GRANTED.
IT IS SO ORDERED AND ADJUDGED this 25th day of August, 2000, at New Albany, Indiana.
MEMORANDUM
This matter came before the Court on the Defendant's Motion for Summary Judgment. The motion arises in the context of the instant Adversary Proceeding to Object to Discharge Pursuant to 11 U.S.C. § 727 by the Plaintiff: Ruth Wilson filed on May 8, 2000, in response to the reopening of the Debtor's bankruptcy case. The parties have filed the following uncontested and stipulated facts which form the basis of the Court's ruling:
Findings of Fact
1. On May 9, 1996, the Plaintiff, Ruth Wilson, filed a complaint against Ron Lucas d/b/a Contractor Sheet Metal, in the Jackson Superior Court, Seymour, Indiana, Cause No. 36D01-9605-CT-7. The allegation was for negligent workmanship, negligent misrepresentation, and breach of implied warranty of habitability.
2. Ron Lucas was served with a copy of the complaint and summons by certified mail on May 15, 1996.
3. The Defendant filed a voluntary petition under Chapter 7 on November 6, 1996. The Defendant did not list the Plaintiff as a creditor.
4. The Trustee reported the Defendant's case was a no asset case on December 13, 1996. The Order of No Asset was dated January 19, 1997.
5. Ron Lucas failed to answer the complaint and default judgment was granted on February 4, 1997. However, no damage award was ordered at that time.
6. The Defendant's bankruptcy was discharged on February 22, 1997.
7. Plaintiff's attorney was informed on July 7, 1997, that the Defendant had filed bankruptcy.
8. A hearing to determine damages related to the default judgment was scheduled for July 8, 1997, at 11:00 a.m.
9. On or about August 16, 1998, counsel for the Debtor filed a Notice of Bankruptcy Motion for Stay in the Jackson County Superior Court maintaining that "The Debtor intends to re-open his bankruptcy case in order to amend it to include the Plaintiff. That amendment will require approximately sixty days to complete. The Bankruptcy Case filed must be obtained from the Federal Chicago Depository." The Jackson County Superior Court granted said notice on August 19, 1998.
10. As of November, 1999, counsel for the Debtor had not filed a motion to reopen the bankruptcy case. Therefore, Ruth Wilson filed a motion to lift stay and request for proceeding supplemental on November 4, 1999. On November 5, 1999, the Jackson County Superior Court granted the Plaintiff's motion.
11. The hearing on the motion for proceeding supplemental was scheduled for January 10, 2000 at 3:00 p.m. The Sheriff served the Debtor on December 11, 1999. On January 10, 2000, counsel for the Debtor contacted counsel for the Plaintiff and stated that he was going to file a notice of bankruptcy stay and request the Bankruptcy Court re-open the case. The matter was again postponed. On January 13, 2000, the Debtor filed, for a second time, his notice of bankruptcy stay, which was granted.
12. On or about March 6, 2000, the Debtors filed a motion entitled "Motion to Reopen Bankruptcy Case." Said motion was not served on the Plaintiff.
13. On April 4, 2000, the Court issued an order reopening the case.
14. On April 7, 2000, the Court issued an order stating the Plaintiff, Ruth Wilson, had 30 days from the Court's order to file complaints objecting to discharge pursuant to 11 U.S.C. § 727, 523(a)(2), (4), (6), or (15). The Plaintiff filed her objection in a timely manner on May 8, 2000.
Discussion
This matter was initiated by the filing of the Plaintiff's Complaint on May 8, 2000, objecting to discharge pursuant to 11 U.S.C. § 727. In response thereto, the instant Motion for Summary Judgment was filed by the Debtor/Defendant, Ron Lucas ["Lucas"]. The Plaintiff, Ruth Wilson ["Wilson"] opposes the motion on the grounds that the case was improperly reopened. Lucas, however, contends that the issue before the Court is whether the challenged debt was discharged in the underlying no-asset Chapter 7 case although it was not scheduled.
The Court has broad discretion to reopen a bankruptcy case. In re Shondel, 950 F.2d 1301, 1304 (7th Cir. 1991). The Seventh Circuit revisited the question in Matter of Bianucci, 4 F.3d 526 (7th Cir. 1993), a case relied upon by Wilson. The Bianucci court refined the inquiry and noted that "[t]he leading approach is permissive but incorporates an equitable defense akin to laches, so that a debtor may reopen the bankruptcy case at any time to avoid a lien absent a finding of prejudice to the creditor." Id at 528 (citations omitted). The facts of Bianucci, however, are distinguishable from the instant case. In Bianucci, the debtor sought to reopen the bankruptcy case to avoid PCA's judgment lien. Bianucci had delayed reopening the bankruptcy case in the hopes that the creditor's judgment would expire. PCA, however, moved to revive the judgment just prior to its expiration and that matter was litigated in the state courts up to the appellate level. The Seventh Circuit concluded that the bankruptcy court was justified in denying the debtor's request to reopen based upon the debtor's inordinate delay, "including a five-month period during which they had actual knowledge that PCA's judgment lien had never affirmatively been avoided. . . ." combined with PCA's expenses to revive its judgment.
Unlike Bianucci, and the bulk of reported decisions which invoke the doctrine of laches, this case does not involve a lien avoidance. Lucas seeks to reopen the case to obtain a discharge of an omitted debt. That fact is significant because the doctrine of laches necessitates a showing of some ensuing prejudice to the party invoking it. Yet under the express language of 11 U.S.C. § 523 (a)(3)(A), it is unnecessary to reopen a case to obtain a discharge of an unscheduled debt in a no-asset case. See, Collier on Bankruptcy, 15th Ed. Rev, 523.09[5], 350.03[2]. That is because, in a no-asset case, no prejudice accrues to the creditor since creditors have been notified under Rule 2002(e) that it is not necessary to file a claim.
Some courts, however, have conditioned reopening on the debtor's payment of reasonable attorney's fees that the creditor expended in pursuit of its claim based upon the debtor's omission in scheduling the debt. Although Wilson was not listed on the Debtor's schedules, she was made aware of the bankruptcy at some point during the state court proceedings. She was granted a judgment by default in violation of the automatic stay but without actual knowledge of the bankruptcy filing. She was subsequently advised of the filing prior to the hearing on damages. It was during the course of the proceedings supplemental that Wilson complains that she was led on, that Lucas informed the court on two separate occasions that he intended to reopen the bankruptcy case in order to delay collection proceedings in state court.
Because Wilson had actual knowledge of the bankruptcy filing prior to any of her collection actions in state court, any such action was taken at her own risk. A review of applicable case law would have placed Wilson on notice that her debt would be considered discharged regardless of its omission from the Debtor's schedules. The Debtor should not be accountable for Wilson's expenses in pursuing her claim beyond a point in time when it may have been reasonable to do so.
Other courts, which consider omitted debts nonetheless discharged, have declined to reopen a no-asset Chapter 7 case because the action is considered to be of no effect. See, American Standard Ins. Co. of Wisconsin v. Bakehorn, 147 B.R. 480 (N.D.Ind. 1992); In re Wells, 246 B.R. 268 (Bankr.E.D.Ky. 2000); In re Musgraves, 129 B.R. 119 (Bankr.W.D.Tex. 1991). While the Court agrees that the administrative act of reopening a no-asset case to schedule an already discharged debt is redundant, it does serve to clarify the record and preserve the Debtor's fresh start. If the Court declined to reopen, the Debtor would undoubtedly be forced to litigate the dischargeability of the debt in state court. In order to avoid additional legal expenses and reserve judicial resources, the bankruptcy case was properly reopened. There was no prejudice to Wilson in the reopening of the case. Wilson's judgment was obtained in violation of the stay and she was on notice of the filing even before the hearing on damages in state court. Any efforts to collect the aforesaid judgment were taken in light of all of the foregoing circumstances.
Finally, the Court finds that Lucas' debt to Wilson was discharged in the prior bankruptcy proceeding. Because the underlying bankruptcy case was declared a no-asset Chapter 7, there would have been no dividend paid to Wilson even if the debt had been listed. Unless the debt falls within section 523(a)(2), (a)(4), (a)(6) or possibly (a)(15), it is discharged. Collier on Bankruptcy, 15th Ed. Rev, 523.09[5], 350.03[2]. Because there has been no allegation that the debt fits within any of the stated exceptions to discharge, this Court joins with the majority of courts that have found that unscheduled debts, not otherwise excepted from discharge by virtue of 523(a)(2), (a)(4) or (a)(6), are discharged in a no-asset Chapter 7 bankruptcy. See, e.g., Judd v. Wolfe, 78 F.3d 110 (3rd Cir. 1996); In re Madaj 149 F.3d 467 (6th Cir. 1998); In re Herzig, 238 B.R. 5 (E.D.N.Y. 1998); In re Karras, 165 B.R. 636 (N.D.Ill. 1994).
Based upon all of the foregoing, the Defendant's Motion for Summary Judgment is GRANTED.
IT IS SO ORDERED AND ADJUDGED this 25th day of August, 2000, at New Albany, Indiana.
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