Opinion
Case No. 96-16267-SSM
June 11, 1998
Klinette H. Kindred, Esquire, Falls Church, Virginia, of Counsel for the debtors
MEMORANDUM OPINION AND ORDER
This matter is before the court on motions filed by Lyda Musick, one of the debtors in this case, to reopen her bankruptcy case and to "revoke" her discharge. A hearing was held on June 9, 1998, at which counsel for the debtor appeared. At the conclusion of the hearing, the court ruled from the bench and denied the motion to revoke discharge. The court did not expressly rule on the motion to reopen. This memorandum opinion supplements the court's bench ruling and also disposes of the motion to reopen.
Background
The debtors, Lanford and Lyda Musick, filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code in this court on November 8, 1996. By order entered on February 28, 1997, they were granted a discharge of their dischargeable debts. The case was then closed on March 27, 1997.
Lyda Musick filed the motion presently before the court on April 28, 1998. The motion seeks to "revoke" her discharge in this case. The motion asserts that, after this case was closed, the debtors had fallen behind on their mortgage payments and filed a chapter 13 case. In preparing the schedules for the chapter 13 case, debtor's counsel "learned that Lyda Musick had owned a remainder interest in land, subject to a life estate, at the time of this chapter 7 case. That interest was worth approximately $12,000. Debtor Lanford Musick had no knowledge or notice of this interest in land." The former chapter 7 trustee, Gordon P. Peyton, filed an opposition to the motion, asserting that if the debtor's discharge is revoked, it would be "manifestly unfair" to creditors.
This is the debtor's second motion to reopen her case. A prior motion was filed on February 12, 1998, but was withdrawn by a praecipe filed on March 13, 1998.
In re Lanford G. Musick and Lyda A. Musick, No. 97-16748-MVB (petition filed Sep. 11, 1997). That case was dismissed on the chapter 13 trustee's motion on January 20, 1998. The husband subsequently filed a chapter 13 petition individually. In re Lanford G. Musick, No. 98-10613-MVB (petition filed Jan. 26, 1998). A plan was confirmed in that case on May 1, 1998.
Apparently the life tenant died sometime after the chapter 7 petition was filed. The property was then apparently sold, and the sales proceeds, or some portion of them, paid to the debtor.
The trustee did not appear at the hearing, and it was represented by the debtor's counsel that she had spoken with the trustee, explained the circumstances, and that he had decided not to press the objection.
At the hearing, counsel for the debtor clarified the debtor's reasons for seeking to revoke her discharge. She stated that the reason the debtor filed the motion was to make creditors and the chapter 7 trustee aware of the omitted asset so that "this issue would not come up and bite her," and that this was the manner by which she thought she could best bring the existence of that asset before the court.
Discussion A.
This court has subject matter jurisdiction under 28 U.S.C. § 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. Under 28 U.S.C. § 157(b)(2)(A), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge.
B.
Under § 350(b), Bankruptcy Code, a closed bankruptcy case "may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." The decision of whether to reopen a closed case is discretionary with the court. Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324 (4th Cir. 1984) (bankruptcy court did not abuse discretion in denying motion to reopen case to file motion to avoid security interest in furniture 8 months after case was closed). A case should not be reopened when doing so would be futile and a waste of judicial resources. In re Carberry, 186 B.R. 401, 402-03 (Bankr. E.D. Va. 1995) (Tice, J.) (denying motion to reopen no-asset case to schedule omitted creditor). The threshold issue, therefore, is whether, if the case were to be reopened, the court could grant meaningful relief.
The motion, on its face, seeks to "revoke" the debtor's discharge. The revocation of a discharge in bankruptcy has a special meaning. Under § 727(d), Bankruptcy Code,
The revocation of a discharge — assuming it could be done — on the debtor's own motion would be tantamount to the waiver of a discharge and would prevent discharge in any future case brought under chapter 7 or 11 of the Bankruptcy Code of any debt that was or could have been listed in the schedules of this case. § 523(a)(10), Bankruptcy Code.
On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if —
(1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge;
(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee; or
(3) the debtor committed an act specified in subsection (a)(6) of this section.
(Emphasis added). Under § 727(e), Bankruptcy Code, the request to revoke the discharge must be made within one year of the granting of the discharge if the basis falls under § 727(d)(1), or — if the basis falls under § 727(d)(2) or (3) — on the later of one year after the granting of the discharge, or when the case is closed. Additionally, the plain language of § 727(d) indicates that the debtor does not have standing to revoke his or her own discharge. See, e.g., Samson v. Markovich (In re Markovich), 207 B.R. 909, 911-12 (Bankr. 9th Cir. 1997) (holding and collecting numerous cases to this effect); 6 Collier on Bankruptcy ¶ 727.15[1], at 727-69 (Lawrence P. King, ed., 15th ed. rev. 1998) ("The debtor does not have standing to seek revocation of a discharge."). But see In re Caldwell, 67 B.R. 296, 301 (Bankr. E.D. Tenn. 1986) (granting the debtor's "motion" to revoke his discharge because his only unsecured debts were held nondischargeable and no creditor would suffer prejudice), rev'd on other grounds, Hardin v. Caldwell (In re Caldwell), 895 F.2d 1123 (6th Cir. 1990). The present motion, moreover, was brought more than one year after the discharge was entered on February 28, 1997. Accordingly, not only does the debtor lack standing to bring the motion, but the motion is untimely in any event.
Because the relief sought cannot be granted in any event, the court only briefly notes that a request to revoke the debtor's discharge cannot be brought by motion but must be brought in the form of a complaint in an adversary proceeding. F.R.Bankr.P. 7001(4).
This, however, does not end the inquiry. The debtor potentially may seek relief from the discharge order under Fed.R.Civ.P. 60, as made applicable by F.R.Bankr.P. 9024. Rule 60(b) states, in relevant part:
Bankruptcy Rule 9024 expressly limits the time within which a complaint to revoke a discharge may be brought to the time limitation provided for by § 727(e).
On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . [or] (6) any other reason justifying relief from the operation of the judgment.
The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding, or to grant relief to a defendant not actually personally notified as provided in Title 28, U.S.C. § 1655, or to set aside a judgment for fraud upon the court.
(Emphasis added). Here, the motion by the debtor to revoke her discharge, even if considered a motion for relief from an order under F.R.Bankr.P. 9024, was made more than one year after the order granting her a discharge was entered, and accordingly, such motion is out of time.
C.
Since the debtor's discharge cannot be revoked, the remaining question is whether reopening the case would serve any other purpose. As discussed above, a closed bankruptcy case may be reopened "to administer assets." The essential relief the debtor seeks is to bring what she represents was an inadvertently-omitted asset to the attention of creditors and the chapter 7 trustee in order to defuse any potential allegation that she fraudulently failed to disclose it on her schedules.
When property is both scheduled by the debtor and not administered by the trustee during the course of a case, such property is deemed abandoned to the debtor when the case is closed. § 554(c), Bankruptcy Code. However, property that is not scheduled, and that is neither abandoned nor administered during the course of the case remains property of the estate, even though the case is closed. § 554(d), Bankruptcy Code; see also In re Avis, 1996 WL 910911, at *3 (Bankr. E.D. Va. 1996). As noted by a leading treatise:
Abandonment presupposes knowledge. There can, as a rule, therefore, be no abandonment by mere operation of law of property that was not listed in the debtor's schedules or otherwise disclosed to creditors . . . Unless the court orders otherwise, formally unabandoned and unadministered property that was not scheduled thus "remains property of the estate." If the property is valuable, the court may reopen the case. . . .
4 Lawrence P. King, Collier on Bankruptcy, ¶ 554.03, p. 554-13 (1995) (emphasis added). Accordingly, if the property described in the debtor's motion was in fact owned by the debtor on the petition date, or subsequently became property of the estate under § 541(a)(5), Bankruptcy Code, it remains property of the estate.
Because the debtor's remainder interest remains property of the estate, it is appropriate to reopen the case to permit the debtor to file amended schedules and to permit the trustee to determine whether to administer the asset.
ORDER
For the foregoing reasons, it is:
ORDERED:
1. The motion to reopen is granted as to the debtor Lyda G. Musick only.
2. The motion to revoke discharge is denied.
3. The United States Trustee will appoint one disinterested person to serve as trustee in the reopened case.
4. The debtor shall have 15 days from the entry of this order to file with the clerk, and serve on the United States Trustee and the appointed trustee, amended schedules.
5. The clerk will mail a copy of this order to counsel for the debtor, the former chapter 7 trustee, and the United States Trustee.