Opinion
Case No. 09-12110
09-03-2014
In Re ALAN L. GLOVER CATHY L. GLOVER Debtors
Chapter 7
ORDER GRANTING MOTION FOR LEAVE TO AMEND AND DENYING OBJECTION TO CLAIM 5
I. Introduction
The Debtors filed a petition for relief under chapter 7 of the Bankruptcy Code on April 9, 2009. See Doc. 1. In the Schedules filed with the petition the Debtors failed to disclose the existence of a potential class action claim. On August 6, 2009, after the Trustee had filed a report of no distribution and after the Debtors had received their discharge pursuant to 11 U.S.C. § 727, the bankruptcy case was closed. Subsequent to the closure of the bankruptcy case, the Debtors contacted the Trustee and informed him that the Debtor-Wife was a party to a prepetition class action suit and that a significant recovery was expected through a settlement. On November 7, 2013, the Trustee filed a motion to reopen the chapter 7 case which was granted on November 12, 2013. See Docs. 18 and 19.
On June 4, 2014, the Trustee filed the Trustee's final report ("Final Report") in which the Trustee proposed to distribute $20,868.58 to the unsecured creditors who timely filed proofs of claim and to distribute $35,507.39 to Barclays Bank PLC who tardily filed an unsecured claim. See Doc. 29. On June 5, 2014, the Debtors filed an objection to the Final Report on the grounds that the Debtors were claiming an exemption in the class action proceeds and were objecting to Claim 5 held by Barclays Bank PLC. See Doc. 31. A hearing on the Final Report and the objection thereto was held on July 3, 2014. At the July 3, 2014, hearing the Court took the matter under advisement and requested that Debtor's counsel file a status report regarding the Debtors' eligibility for student loan forgiveness pursuant to 20 U.S.C. § 1087e(m).
On June 5, 2014, the Debtors filed a motion for leave to amend Schedules B and C to disclose the class action suit and to claim the relevant exemptions in the proceeds from the class action suit ("Motion for Leave"). See Doc. 33. On July 1, 2014, the Trustee filed an objection to the Motion for Leave on the grounds that it was untimely and that the failure to disclose the claim until five years after the petition constituted bad faith justifying denial of any exemption. See Doc. 36. On July 18, 2014, the Debtors filed a response to the objection to the Motion for Leave in which the Debtors asserted that the Motion for Leave was timely filed and the Debtors did not act in bad faith. See Doc. 41.
On June 5, 2014, the Debtors filed an objection to Claim 5. See Doc. 32. On July 7, 2014, the Trustee filed a response to the Objection to Claim asserting that the basis for the objection was invalid. See Doc. 37. On July 18, 2014, the Debtors filed an amended objection to Claim 5 ("Objection to Claim") in which the Debtors asserted that the claim should be disallowed because it was filed after the bar date of February 13, 2014, and because the Debtor-Wife is eligible to participate in a student loan forgiveness payment plan pursuant to 20 U.S.C. § 1087e(m). See Doc. 44.
A hearing on the Motion for Leave and the Objection to Claim was held on August 13, 2014. At the close of the hearing, the Court took both matters under advisement.
II. Motion for Leave to Amend and Amendments to Schedules B and C
On June 5, 2014, after the reopening of the bankruptcy case, the Debtors filed the Motion for Leave. See Doc. 33. Attached to the Motion for Leave are amended Schedules B and C. Schedule B was amended to disclose the existence of the Avandia class action claim which was valued at $63,251.58. Schedule C was amended so that the Debtors could claim an exemption in the class action proceeds in the amount of $20,200.00 and $1,075.00 pursuant to ORC § 2329.66. On July 1, 2014, within 30 days of the Debtors amending their Schedules, the Trustee filed the objection to the Motion for Leave in which he asserted that the Debtors should not be allowed to claim the exemptions because they acted in bad faith. See Doc. 36.
Section 522 of the Bankruptcy Code provides that "[u]nless a party in interest objects, the property claimed as exempt . . . is exempt." 11 U.S.C. § 522(l). The Federal Rules of Bankruptcy Procedure provide that "the objecting party has the burden of proving that the exemptions are not properly claimed." Fed. R. Bankr. P. 4003(c). If the party objecting to a claimed exemption fails to prove by a preponderance of the evidence that an exemption is not properly claimed, the claimed exemption will stand. In re Waller, 464 B.R. 62 (B.A.P. 6th Cir. 2010).
Federal Rule of Bankruptcy Procedure 1007 requires that a debtor file schedules, statements, and other required documents with the petition or within 14 days thereafter. Fed. R. Bankr. P. 1007(b)(1) and (c). However, while the schedules must be filed within 14 days of the petition date, pursuant to Federal Rule of Bankruptcy Procedure 1009 "[a] voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed." Fed. R. Bankr. P. 1009(a) (emphasis added). While a debtor had right to amend his schedules as a matter of course pursuant to Rule 1009, the Sixth Circuit Court of Appeals has held that "courts may refuse to allow an amendment where a debtor has acted in bad faith, where property has been concealed, or where a prejudice to creditors would result." In re Waller, supra; see Lucius v. McLemore, 741 F.2d 125, 127 (6th Cir. 1984). In determining whether a debtor's claimed exemption should be disallowed because the debtor has acted in bad faith, concealed assets, or engaged in other conduct prejudicial to creditors, courts examine the totality of the circumstances. See In re Waller, supra; In re Robinson, 292 B.R. 599, 609 (Bankr. S.D. Ohio 2003).
In this case, the Trustee does not assert that the Debtors have no basis under Ohio law to claim an exemption in the class action proceeds, instead the Trustee asserts that the Debtors should not be allowed to claim the exemption because the Debtors acted in bad faith in failing to disclose the existence of the potential claim until five years after the petition date. Specifically the Trustee asserts that the fact that the Debtors received a prepetition letter, dated June 27, 2008, from the class action attorney advising the Debtors that a lawsuit will be filed within the next five to sixth months is evidence that the Debtors fraudulently concealed assets. See Doc. 36.
While the Trustee asserts that the Debtors acted in bad faith and intentionally concealed assets, it appears to the Court based upon the evidence introduced at the August 13, 2014, hearing, the representations of counsel, and the record of proceedings in this case that the conduct of the Debtors in this case has been nothing but forthright. Upon discovering that a settlement of the class action claim was being finalized, the Debtors contacted the Trustee to disclose the existence of the class action claim and the entirety of the proceeds from the class action claim has been turned over to the Trustee. The Debtors seem to have made an honest mistake in failing to initially disclose the existence of the class action suit and the Trustee has failed to meet his burden in showing by a preponderance of the evidence that Debtors intentionally concealed assets and acted in bad faith.
Accordingly, the Motion for Leave is hereby GRANTED. Further, since the Trustee has not asserted that the Debtors have no basis under Ohio law to claim an exemption in the class action proceeds, the Amendment to Schedule C is hereby allowed.
III. Objection to Claim 5
On July 18, 2014, the Debtors filed the Objection to Claim, in which the Debtors sought to disallow Claim 5 because it was filed after the bar date of February 13, 2014, and because the Debtor-Wife is eligible to participate in a student loan forgiveness payment plan pursuant to 20 U.S.C. § 1087e(m). See Doc. 44.
A properly filed claim "constitute[s] prima facie evidence of the validity and amount of the claim." Fed. R. Bankr. P. 3001(f). Section 502 further provides that a proof of claim is deemed allowed unless an objection to the claim is filed. 11 U.S.C. § 502(a). Upon an objection to a proof of claim being filed the burden of proof shifts from the claimant to the movant to provide evidence that the claim is either invalid or for an incorrect amount. In re Bavelis, 13-8015, 2013 WL 6672988, at *12 (B.A.P. 6th Cir. Dec. 19, 2013).
In this case, the Debtors have failed to provide any evidence that Claim 5 is invalid. The mere fact that Claim 5 was filed after the bar date is not sufficient grounds to disallow a claim. In fact, § 726 provides that after the payment of priority unsecured claims and timely filed unsecured claims, payment will be made to "any allowed unsecured claim proof of which is tardily filed under section 501(a) of this title." 11 U.S.C. § 726(a)(3); In re Houser, 242 B.R. 406, 407 (Bankr. S.D. Ohio 1999). Further, simply because the Debtor-Wife may be eligible to have her student loans forgiven in approximately two years pursuant to 20 U.S.C. § 1087e(m) is not grounds for disallowance of a claim. The Court is unaware of, and the Debtors have not provided, any case law supporting the notion that a claim can be disallowed because a debtor is potentially eligible to have his or her student loan forgiven pursuant 20 U.S.C. § 1087e(m). Accordingly since the Debtors have failed to meet their burden in showing that Claim 5 is invalid, the Objection to Claim is hereby DENIED.
IV. Conclusion
Based on the foregoing, the Motion for Leave is hereby GRANTED and the Objection to Claim is hereby DENIED. Additionally, the objection to the Trustee's final report is hereby sustained to the extent that the Debtors are entitled to claim an exemption in the class action proceeds under Ohio law.
So Ordered.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Burton Perlman
United States Bankruptcy Judge Dated: September 3, 2014 Copies to: Default List