448 B.R. 887
S.D.W. Va2011Background
- On March 3, 2010, the McMellons filed a voluntary Chapter 7 petition and schedules were filed.
- The bankruptcy court discharged debts on June 16, 2010 and closed the case on August 24, 2010.
- On September 8, 2010, McMellon filed a wrongful discharge claim in Cabell County Circuit Court.
- Steel moved to dismiss the state court claim on judicial estoppel grounds on October 5, 2010.
- Before a hearing on Steel’s motion, the McMellons sought to reopen the bankruptcy case to amend schedules to include the wrongful discharge claim; reopening was granted after a December 15, 2010 hearing, despite Steel’s objections.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether reopening was abuse of discretion given non-disclosure | McMellons argue reopening serves creditors and is proper when asset schedules are amended to include a potential claim. | Steel argues non-disclosure of a potential claim bars reopening to avoid judicial estoppel and protects bankruptcy integrity. | Reversal; reopening abused discretion; motion to reopen denied without prejudice and remanded. |
| Whether debtor acted in good faith in failing to disclose the claim | McMellons contended omission was inadvertent due to counsel's advice and communication failures. | Steel contends there was knowledge and concealment motive to preserve potential recovery. | Finding of bad faith or concealment; non-disclosure not inadvertent; supports denial of reopening. |
Key Cases Cited
- Coastal Plains, 179 F.3d 197 (5th Cir. 1999) (require disclosure of potential claims, including contingent or conditional ones)
- Moses v. Howard Univ. Hosp., 606 F.3d 789 (D.C. Cir. 2010) (debtor cannot back up and reopen to salvage undisclosed claims)
- In re Lowery, 398 B.R. 512 (Bankr.E.D.N.Y. 2008) (good faith matters in reopening for undisclosed personal injury actions)
- In re Rochester, 308 B.R. 596 (Bankr.N.D. Ga. 2004) (trustee’s interests and creditor impact relevant in reopening decisions)
- In re Carter, 156 B.R. 768 (Bankr. E.D. Va. 1993) (discretion to reopen depends on circumstances and interest of creditors)