In an October 3 decision, a Massachusetts Bankruptcy Court ruled that a debtor could not reopen her chapter 7 bankruptcy to commence an adversary proceeding to enforce the discharge.
The debtor was involved in an auto accident in 2003 which resulted in the death of another person. Later in the year, the Administrator of the Estate accepted $100,000 from the debtor’s insurance company and signed a release. In December 2004, the debtor filed her chapter 7 bankruptcy petition and received a discharge in April 2005. In the petition, she did not list the Estate as a creditor. There were no assets to distribute to creditors.
Then, in January 2006 the debtor heard from the “successor” Administrator of the Estate.
Uh-oh.
The new Administrator filed a complaint in state Superior Court seeking damages for claims arising out of the accident on the grounds that the release is unenforceable. The debtor answered the complaint, and among the affirmative defenses, asserted that the claim was discharged in bankruptcy.
The debtor moved to reopen her chapter 7 case to enforce the discharge against the debt. Even though the creditor did not respond, the court denied the motion but without prejudice. The court noted that the debtor did not list the Estate as a creditor because at the time of the bankruptcy filing, there was no claim. Only claims need to be listed, so not listing the claim – which was not a claim – was not a problem. If the release is deemed to be enforceable, there is no “debt” to discharge because it did not exist at the time of the filing. In other words, if the Superior Court rules that the release is enforceable, “the matter ends.”
But if the Superior Court rules that it is not enforceable, at that time, the court may consider a renewed motion to reopen the case. Because at that time, it would be appropriate to determine whether the discharge applies to this claim, which is essentially “revived” because of a defective release. “Until then,” the court wrote “there would be no relief to provide the debtor if I reopened the case.”
In re Reid, Chapter 7 case no. 04-20319
Related posts:
- When You Discover that You Are a Creditor in a Bankruptcy Case…
- No Cake and No Discharge
- Inaccurate Schedules Lead to Discharge Denial
- Failure to Turnover Tax Refund Leads to Discharge Revocation
- The $70K Attorney’s Error and a Debtor’s Discharge
Tags: Bankruptcy, Chapter 7, Discharge of Debts
