In Re: Capital City Bank

BACKGROUND

Plaintiff initiated this adversary proceeding on April 20, 2026, but filed an Amended Complaint (ECF No. 4) on April 22, 2026. The summons was issued the next day and then reissued on May 1, 2026. Accordingly, an answer or responsive pleading was due to be filed on or before June 1, 2026. Fed. R. Bankr. P. 7012(a)(1). No answer or responsive pleading was filed. Plaintiff filed a Second Amended Complaint (ECF No. 14) (the

"Complaint") on June 4, 2026, to which an answer or responsive pleading was required on or before June 18, 2026. Fed. R. Civ. P. 15(a)(3); Fed. R. Bankr. P. 7015. Again, no answer or responsive pleading was filed, and Plaintiff sought entry of default. Default was entered against Defendants on July 1, 2026. (ECF No. 18.) Defendants moved to set aside the default a week later.

The Complaint alleges four counts of nondischargeability under 11 U.S.C. §§ 523(a)(2)(A) and (B). In short, Plaintiff alleges that Defendants obtained financing for the purchase of two vehicles by false pretenses, false representations, or actual fraud and/or by making misrepresentations with an intent to deceive. (ECF No. 14 at ¶¶ 24-39.) Specifically, Plaintiff alleges Defendants did not accurately state their incomes on the credit applications for the financing of the vehicles. The vehicles have since been repossessed and sold. (Id. at ¶¶ 8, 17.) Plaintiff seeks a determination that certain unsecured deficiency amounts of debt arising from the two vehicles are nondischargeable.

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In the Motion, Defendants stated that their default was caused by an

"administrative error" and that they have meritorious defenses to the Complaint. Defendants' counsel explained at the hearing that he failed to timely respond to the Complaint because his secretary did not properly calendar the answer deadline. Upon learning of the default, he acted quickly to file the Motion. He also outlined defenses to the Complaint. First, Defendants state that they had no intention to defraud or make misrepresentations to Plaintiff when they applied for credit in connection with the purchases of the vehicles. In support of this, Defendants contend that someone else filled out the credit applications and filled them out incorrectly, and one of the Defendants was not even present at the time one of the applications was completed or negotiated, although both credit applications appear to be signed by both Defendants. Second, Defendants argue that Plaintiff did not justifiably rely on Defendants' statements concerning their financial condition. Defendants assert that Plaintiff purchases these car loans in bundles, and Defendants dispute that Plaintiff justifiably relied on Defendants' statements when it purchased the bundles containing Defendants' car loans. Defendants wish to investigate these defenses further in discovery.

Plaintiff opposes setting aside the default primarily for two reasons: Defendants did not explain the "administrative error" that caused the default and Defendants did not present any meritorious defenses to the Complaint, instead offering bare denials of the

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elements of Plaintiff's claims, in their Motion. At the hearing and after Defendants' counsel explained the administrative error, Plaintiff largely conceded that the default was not willful or the result of gross neglect and that Defendants did not completely ignore this proceeding. However, Plaintiff maintained that Defendants did not offer sufficiently meritorious defenses to establish good cause to set aside the default, particularly in light of the significant discrepancy between the incomes stated in the credit applications ($15,750 total monthly income in the first credit application and $24,166.66 total monthly income in the second credit application) and their actual, accurate incomes (approximately $7,569 total monthly income).

FINDINGS OF FACT AND CONCLUSIONS OF LAW

An entry of default may be set aside "for good cause." Fed. R. Civ. P. 55(c); Fed. R. Bankr. P. 7055. This is a "very low standard," and courts generally consider such factors as whether (1) the defaulting party has acted promptly to vacate the default; (2) the default was willful or the result of gross neglect; (3) the party in default has a meritorious defense to the complaint; and (4) the non-defaulting party will be substantially prejudiced by the reopening. Durango Ga. Paper Co. v. Dave King Paper Sales & Consulting, Inc. (In the Matter of Durango Ga. Paper Co.), 314 B.R. 881, 883 (Bankr. S.D. Ga. 2004); see also Jones

v. SPMK XV Meadows, LLC, d/b/a The Meadows Apartments (In re Jones), No. 21-55600- LRC, Adv. No. 22-05054-LRC, 2022 WL 19228831, at *2 (Bankr. N.D. Ga. May 27, 2022).

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These factors are not exclusive. Courts may consider any relevant circumstances that may warrant a finding of good cause. Compania Interamericana Export-Import, S.A. v. Compania Dominicana de Aviacion, 88 F.3d 948, 952 (11th Cir. 1996). The determination whether there is good cause to set aside an entry of default is a discretionary one. Grupo Rayco C.A. v. Delta Air Lines, Inc., No. 1:20-cv-01952-AT, 2021 WL 1351859, at *4 (N.D. Ga. Mar. 16, 2021); Jones, 2022 WL 19228831, at *2 (citing Compania Interamericana Exp.-Imp., S.A., 88 F.3d at 952-53). In exercising that discretion, courts must keep in mind the "strong policy favoring the determination of a case on its merits." Gibbs

v. Gibbs (In re Gibbs), 617 B.R. 736, 742 (Bankr. N.D. Ga. 2020); see also Gulf Coast Fans, Inc. v. Midwest Elecs. Imps., Inc., 740 F.2d 1499, 1510 (11th Cir. 1984).

1. Whether Defendants acted promptly to vacate the default. The first factor the Court will consider is the timeliness of the Motion. Defendants filed the Motion one week after entry of default. Defendants clearly acted promptly and this weighs in their favor.

2. Whether the default was willful or the result of gross neglect. Next, the Court will consider whether the default was willful or caused by the gross neglect of Defendants. This requires the Court to consider a defaulting party's "culpability and excuse for defaulting." Durango Ga. Paper Co., 314 B.R. at 884. Here, the default occurred because Defendants' counsel failed to properly calendar the answer deadline.

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The default was not the fault of Defendants, was not willful, and does not amount to gross neglect. See, e.g., Fla. Physician's Ins. Co., Inc. v. Ehlers, 8 F.3d 780, 783 (11th Cir. 1993) (concluding that a "technical error or a slight mistake" by a defaulting party's counsel should not deprive the party of an opportunity to present the merits of his claim); cf. Grupo Rayco C.A., 2021 WL 1351859, at *6 (finding defendant had exhibited a pattern of reckless disregard for court orders, court rules, and deadlines, where defense counsel did not take any action to seek an extension of the deadline to file an answer; delayed obtaining pro hac vice admission to court; and missed other deadlines set by the court); Insituform Techs., Inc. v. AMerik Supplies, Inc., 588 F. Supp. 2d 1349, 1358-59 (N.D. Ga. 2008) (finding willful or culpable default where defendant was aware of the lawsuit and made a conscious decision not to respond to complaint and instead attempted to negotiate a settlement). This factor weighs in favor of Defendants.

3. Whether Defendants have a meritorious defense to the Complaint. After a default, rather than recite plain denials as in an answer, Defendants "must allege some evidence of a factual basis for a meritorious defense." Durango Ga. Paper Co.,

314 B.R. at 884; see also Parker v. U.S. Bank Nat'l Ass'n, 580 F. App'x 776, 777 (11th Cir. 2014). A meritorious defense need only demonstrate a possibility of success at trial. Pa. Nat'l Mut. Cas. Ins. Co. v. Generali-U.S. Branch, 345 F.R.D. 592, 595-96 (D. Md. 2024) (finding that in light of scant briefing, "[i]t is enough for the Court to observe that, if [Defendant]'s

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account is true, it may have a meritorious defense to at least some of [Plaintiff]'s claims"); Piel v. World Omni Fin. Corp. (In re Piel), 655 B.R. 93, 99 (Bankr. D.S.C. 2023) (finding defaulting party had "raised sufficient arguments to support the possibility that it may prevail after a full trial"); 1st Franklin Fin. Corp. v. Adams (In re Adams), No. 19-42806- PWB, Adv. No. 21-4007-PWB, 2021 WL 3671111, at *2 (Bankr. N.D. Ga. Aug. 10, 2021) (meritorious defenses need not be "winning" or "prevailing," but only "legitimate" or

"justifiable"); River City Bank v. Mathis (In re Mathis), 465 B.R. 325, 331-33 (Bankr. N.D. Ga. 2012) (defendants presented meritorious defenses by alleging facts and defenses that

"could" defeat plaintiff's claims). Here, Plaintiff has alleged that certain debt of Defendants is nondischargeable because it was obtained by false pretenses, false representations, or actual fraud and/or by making misrepresentations with an intent to deceive. Defendants have presented several arguments to defend themselves against these allegations, specifically (1) the credit applications were prepared incorrectly by someone else, not Defendants; (2) one of Defendants was not present when one of the credit applications was negotiated; and (3) Plaintiff did not justifiably rely on Defendants' statements because it purchased Defendants' car loans in a bundle with many other loans and may not have justifiably relied on Defendants' statements when purchasing such a bundle. Defendants assert they will be able to prove there was no ill intent, deception, or fraud in connection with the

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credit applications based on the above arguments. Defendants concede that they require discovery to fully flesh out their defenses, particularly the justifiable reliance defense. After consideration, the Court finds that Defendants' facts, if true, could support meritorious defenses to the Complaint. Defendants' arguments are enough to establish a possibility of success at trial. This factor weighs in favor of Defendants.

4. Whether Plaintiff will be substantially prejudiced by setting aside the default. Finally, the Court must determine whether Plaintiff will be substantially prejudiced if the default is set aside. Typically, a non-defaulting party is substantially prejudiced only if it is shown that "evidence has been lost, destroyed, or will be more difficult to obtain, or that the plaintiff's costs will increase to an unfair degree as a result of setting aside the default." Gibbs, 617 B.R. at 742. Substantial prejudice is not shown by delay alone. Bailey

v. Hako-Med USA, Inc. (In re Bailey), 411 B.R. 492, 495 (Bankr. S.D. Ga. 2009); see also 1st Franklin Fin. Corp., 2021 WL 3671111, at *2 ("no true prejudice" to plaintiff where the case was "barely two months old").

Defendants argued at the hearing that Plaintiff would not be prejudiced by setting aside the default because the delay in seeking to reopen the default was short and the parties will be able to perform discovery as if the default had not occurred, i.e., no evidence has been lost due to the short delay. Plaintiff argued that it would be prejudiced by setting aside the default due to the delay and the lack of meritorious defenses.

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The Court agrees with Defendants. The delay here is minimal and poses no realistic prejudice to Plaintiff. As previously discussed, Defendants have presented several meritorious defenses or facts to dispute Plaintiff's claims, so Plaintiff will not be substantially prejudiced by setting aside the default. Cf. Durango Ga. Paper Co., 314 B.R. at 885 (finding where no meritorious defense has been presented by defendant, a plaintiff would be substantially prejudiced by reopening a default). Accordingly, this factor weighs in favor of setting aside the default.

After consideration, each of the relevant factors weighs in favor of setting aside the default. Furthermore, the Court prefers to decide cases on the merits rather than by default. Perez v. Wells Fargo N.A., 774 F.3d 1329, 1332 (11th Cir. 2014) ("[W]e have a strong preference for deciding cases on the merits—not based on a single missed deadline— whenever reasonably possible."). Good cause exists to set aside the default and allow this case to proceed on the merits. As a final note, Defendants filed their Answer (ECF No. 32) on August 26, 2026. The Court accepts the late-filed Answer in light of its decision herein; Defendants need not seek further approval or leave to answer the Complaint. Accordingly, for the reasons stated above,

ORDER

IT IS HEREBY ORDERED that the Motion (ECF No. 20) is GRANTED;

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FURTHER ORDERED that the Clerk's Entry of Default (ECF No. 18) is VACATED; and

FURTHER ORDERED that the late-filed Answer (ECF No. 32) filed by Defendants is accepted as filed.

Michele J. Kim

Chief Judge

United States Bankruptcy Court

Southern District of Georgia

Dated at Brunswick, Georgia,

this 15^thday of September, 2026.

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