444 B.R. 728
W.D. Ky.2011Background
- Appellee attorney filed for Chapter 7 with no assets and discharged debts.
- Appellee previously prepared security documents for Appellant but failed to record one in the proper county.
- The unrecorded security caused Appellant to lose its security interest when the secured property later sold.
- Damage to Appellant allegedly resulted from Appellee's negligent recording; Appellee does not contest liability.
- Appellee sought to amend bankruptcy schedules to add Appellant as a creditor and have the malpractice claim discharged; Bankruptcy Judge held the claim was dischargeable as a contingent right to payment under §101(5).
- Case involved a no-asset bankruptcy; court concluded no asset needed to be scheduled for discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Dischargeability of the malpractice claim | Hutchinson contends claim arose post-petition, so not discharged. | Hutchinson argues the claim is a pre-petition right to payment and dischargeable. | Claim discharged as pre-petition right to payment. |
| Reopening or challenging the no-asset designation | Appellant should be allowed to challenge no-asset status. | Record insufficient; reopening for unadministered assets not shown. | Remanded to determine if unadministered assets justify reopening. |
Key Cases Cited
- In re Grossman's Inc., 607 F.3d 114 (3d Cir.2010) (contingent damages pre-petition can discharge the claim)
- In re Huffy Corp., 424 B.R. 295 (Bankr.S.D.Ohio 2010) (contingent damages; pre-petition conduct can yield dischargeable claim)
- In re Parker, 264 B.R. 685 (10th Cir. BAP 2001) (claim arises pre-petition despite post-petition damages)
- In re Hassanally, 208 B.R. 46 (9th Cir. BAP 1997) (pre-petition claim discharged if damages post-petition are contingent)