604 B.R. 438
Bankr. S.D.N.Y.2019Background
- Debtor Heriberto Velez filed a Chapter 7 petition on Feb. 23, 2019 and did not disclose a prepetition personal-injury lawsuit or any related claim in his schedules or at the 341 meeting.
- Trustee conducted the 341 meeting, filed a Report of No Distribution, and the Court entered discharge on March 28, 2019; the case was closed June 21, 2019 as a no-asset case.
- After closing, special-counsel for the Debtor’s personal-injury action informed the former Chapter 7 Trustee that the prepetition claim existed and could yield recovery beyond counsel fees and any debtor exemption.
- The former Chapter 7 Trustee moved under 11 U.S.C. § 350(b) and Fed. R. Bankr. P. 5010/9024 (Fed. R. Civ. P. 60(b)) to reopen the case to administer the undisclosed asset and requested prompt appointment of a new trustee.
- No objections were filed; Debtor’s bankruptcy counsel consented at the hearing; the Court found little prejudice from reopening given the short interval since closure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether undisclosed prepetition personal-injury claim provides cause to reopen under § 350(b) | Trustee: undisclosed claim remains estate property and warrants reopening to administer assets | Debtor: (no objection at hearing; implied acceptance) | Court: Yes — undisclosed claim is estate property and provides cause to reopen |
| Whether former trustee has standing to move to reopen | Trustee: as one informed about the case, trustee may move to reopen to pursue estate assets | Debtor: (no contest) | Court: Former trustee has standing to seek reopening |
| Whether reopening requires vacatur of prior discharge | Trustee: reopening and administration of undisclosed asset necessitate vacating discharge | Debtor: (no contest) | Court: Discharge entered Mar. 28, 2019 is vacated |
| Whether U.S. Trustee must appoint new trustee upon reopening | Trustee: requests prompt appointment to prosecute claim | Debtor: (no contest) | Court: Case reopened; U.S. Trustee shall promptly appoint a trustee |
Key Cases Cited
- In re Arana, 456 B.R. 161 (Bankr. E.D.N.Y. 2011) (undisclosed assets remain estate property after case closure and courts should weigh benefit to creditors/debtor when reopening)
- Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116 (2d Cir. 2008) (undisclosed estate property does not revert to debtor upon case closing)
- In re Winebrenner, 170 B.R. 878 (Bankr. E.D. Va. 1994) (former trustee has standing to move to reopen to pursue undisclosed prepetition litigation)
- Nemaizer v. Baker, 793 F.2d 58 (2d Cir. 1986) (Rule 60(b) balances finality of judgments with ends of justice)
- In re AMC Realty Corp., 270 B.R. 132 (Bankr. S.D.N.Y. 2001) (courts should consider likelihood of distributions to creditors and equitable factors when reopening)