592 B.R. 178
Bankr. S.D. Ohio2017Background
- Debtor Lori Smallwood filed Chapter 13 on August 8, 2012 with a plan proposing to avoid a mortgage held by Fifth Third (later FV-1 as assignee); an adversary proceeding was filed to determine the mortgage's validity.
- In October 2015 the bankruptcy court ruled Fifth Third held no lien on the Property; the adversary was closed and the Chapter 13 plan proceeded until the Debtor defaulted on plan payments.
- The case was dismissed for failure to make plan payments on May 18, 2017; Debtor filed a timely Rule 60 motion to vacate the dismissal on May 23, 2017.
- Debtor attributed missed payments to extraordinary expenses (funeral costs for her child’s father, lost wages related to guardianship efforts) and later obtained a second job and filed a proposed modified plan that could complete within five years.
- FV-1 (creditor) objected to vacatur; the Trustee initially objected but later indicated she would not oppose vacatur.
- The court denied relief under Rule 60(b)(1) but granted vacatur under Rule 60(b)(6) as an extraordinary equitable remedy to avoid undue hardship (foreclosure) and to permit Debtor to pursue the modified plan.
Issues
| Issue | Debtor's Argument | FV-1's Argument | Held |
|---|---|---|---|
| Timeliness of Rule 60 motion | Motion filed within appeal period; therefore proper | Dismissal should have been appealed instead | Motion filed within 14-day appeal period; timely — GRANTED as timely |
| Standing to object | FV-1 lacks standing/pecuniary interest | FV-1 has pecuniary interest from note assignment | Court assumed FV-1 had standing but did not decide standing issue |
| Relief under Rule 60(b)(1) (mistake/excusable neglect) | Employer/payroll deduction failure and extraordinary expenses constitute excusable neglect | Debtor’s mistake not a litigation/attorney/judge error and not covered by (b)(1) | Denied — (b)(1) inapplicable to employer/third-party conduct |
| Relief under Rule 60(b)(6) (equitable relief) | Exceptional circumstances and undue hardship (risk of foreclosure; changed circumstances; modified plan feasible) justify vacatur | Insufficient equitable basis; procedural objections | Granted — court found extraordinary circumstances and substantial injustice; vacated dismissal to allow modified plan review |
Key Cases Cited
- Ackermann v. United States, 340 U.S. 193 (1950) (Rule 60(b) may be barred where appeal time has expired)
- Beshear v. Weinzapfel, 474 F.2d 127 (7th Cir. 1973) (prefers Rule 60(b) motion to trial court while appeal period remains)
- Cacevic v. City of Hazel Park, 226 F.3d 483 (6th Cir. 2000) (scope of Rule 60(b)(1) explained)
- In re Geberegeorgis, 310 B.R. 61 (6th Cir. BAP 2004) (Rule 60(b)(6) grants vacation of judgments when substantial justice requires)
- Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847 (1988) (Rule 60(b)(6) reserved for exceptional or extraordinary circumstances)
- In re Timmons, 479 B.R. 597 (Bankr. N.D. Ala. 2012) (granting Rule 60(b)(6) relief based on changed circumstances and equity)
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007) (bankruptcy law's fresh-start policy for honest but unfortunate debtors)