Otha Marvin Delaney
Amended Order Concerning First Financial of Charleston, Inc.‘s Objection to Debtor‘s Motion to Reopen
The relief set forth on the following pages, for a total of 17 pages including this page, is hereby ORDERED.
FILED BY THE COURT 11/17/2025
S.
US Bankruptcy Judge
District of South Carolina
Entered: 11/17/2025
AMENDED ORDER1 CONCERNING FIRST FINANCIAL OF CHARLESTON, INC.‘S OBJECTION TO DEBTOR‘S MOTION TO REOPEN
THIS MATTER is before the Court on the Objection2 by First Financial of Charleston, Inc. (“First Financial“) to a Motion to Reopen3 filed by Otha Marvin Delaney (“Debtor“). Debtor and First Financial have been engaged in a civil action for the past fourteen years (the “State Court Litigation“)4. That litigation is now at the summary judgment stage,5 where First Financial argues that Debtor should be barred from maintaining the State Court Litigation based on his failure of disclosure in this case. Debtor seeks to reopen this twelve-year-old bankruptcy case to list the cause of action against First Financial as an asset of this estate.
As a threshold matter, Debtor raised whether First Financial has a right to be heard on the Motion to Reopen and standing to object. Both parties filed statements of dispute on July 14, 2025.6 In his statement, Debtor objected to any witness testimony or evidentiary hearing until this issue was determined. The Court held a hearing on standing on July 16, 2025. The parties agreed that an evidentiary hearing on this issue was unnecessary as the matter was purely a question of law.7 At the
FACTS AND PROCEDURAL BACKGROUND
On October 4, 2011, Debtor filed a class action in the Charleston County Court of Common Pleas against First Financial, alleging that First Financial violated the South Carolina Commercial Code related to its collection efforts against Debtor and other putative class members. Debtor is the lead plaintiff of the class. The State Court Litigation is not yet resolved. The nearly fourteen-year procedural history of the State Court Litigation is complex, but the facts relevant to this matter are simple.
The parties agree that Debtor entered into a retail installment sales contract to purchase a vehicle in October of 2007. First Financial was the secured party to that contract. Debtor defaulted on the loan contract. In the spring of 2008, First Financial repossessed the vehicle. Debtor‘s state court complaint alleges that Debtor, and others similarly situated, were not provided proper notice of disposition under the UCC when their collateral was sold.
On January 24, 2013, Debtor filed this Chapter 7 bankruptcy case. First Financial was not scheduled as a creditor and the State Court Litigation was listed as “dismissed” in the Statement of Financial Affairs.8 Debtor did not schedule the State Court Litigation as an asset in Schedule B nor did he exempt any recovery from the action in Schedule C. First Financial asserts that the State Court Litigation was, in fact, not dismissed at the time of the petition or at the time the chapter 7 trustee filed his report of no assets.9
Debtor now asks the Court to reopen the 2013 bankruptcy case, for the purpose of amending schedules to “list and describe the [l]awsuit in a more fulsome manner.”10 First Financial opposes the relief because its recent motion for summary judgment in the State Court Litigation is pending before the trial court and reopening this case may impact that proceeding.
ANALYSIS AND CONCLUSIONS OF LAW
Chapter 7 debtors must file schedules that list and describe all of their assets, including legal claims against others.
There are two threshold issues the Court must determine prior to hearing the merits of Debtor‘s Motion to Reopen. First, whether First Financial has a statutory right to be heard on its objection. Second, if it does have a right to be heard,
Debtor contends11 First Financial lacks both the right to be heard under the Bankruptcy Code and standing under Article III of the United States Constitution to object to his Motion to Reopen because First Financial‘s only demonstrated interest in this matter is the potential effect that reopening the case might have on the State Court Litigation.12 This Court has previously found that a defendant to a state court action lacks standing to oppose reopening. In re Boyd, 618 B.R. 133, 160 (Bankr. D.S.C. 2020). However, the facts of Boyd were very different from the facts of this case. In Boyd, a debtor sought to reopen a chapter 13 case to disclose a post-petition cause of action and the party opposing reopening had no stake in the outcome of the bankruptcy case. In this case, the State Court Litigation was initiated pre-petition and remains pending against First Financial in its capacity as a former secured creditor of property pledged by Debtor. Debtor nevertheless avers First Financial is not presently a creditor. Debtor alleges that First Financial has not provided any evidence of its secured, unfulfilled lien against Debtor,13 of its acquisition of another creditor‘s claim,14 or of any pecuniary interest that would be directly affected by the reopening of this case. Debtor also contends that the statute of limitations has barred First Financial from seeking any additional recovery from Debtor under the 2007 contract.
First Financial disagrees, contending it has both a statutory right to be heard as a “party in interest” and, to the extent it is required, Article III standing to object. On both of these issues, the Court agrees with First Financial.
I. Right to be Heard as a Party in Interest
“A 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.”
“Party in interest” is not defined in the Bankruptcy Code, but the Fourth Circuit has indicated that a “party in interest” for bankruptcy purposes includes “‘all persons whose pecuniary interests are directly affected by the bankruptcy proceedings.‘” In re Boyd, 618 B.R. at 146 (quoting Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 756 (4th Cir. 1993)) (internal citations omitted).
For additional guidance in determining who qualifies as a “party in interest,” many courts look to the definition set forth in
The Supreme Court has recently discussed the meaning of the term, holding “party in interest” is “capacious” and covers any party whose “financial exposure may be directly and adversely affected by a plan ....” Truck Ins. Exch., Inc. v. Kaiser Gypsum Co., 602 U.S. 268, 284 (2024). “This understanding aligns with [the Supreme Court‘s] observation that Congress uses the phrase ‘party in interest’ in bankruptcy provisions when it intends the provision to apply ‘broadly.‘” Id. at 278 (citing Hartford Underwriters Ins. Co. v. Union Planters Bank, N. A., 530 U.S. 1, (2000)); see also
As discussed below, First Financial is a creditor with a pecuniary interest in the estate that may be directly affected if this case is reopened. Therefore, under the big tent interpretation of Truck Ins. Exch., First Financial is a party in interest with a right to be heard on Debtor‘s requested relief.
a. First Financial‘s Status as a Creditor
“The terms ‘debt’ and ‘claim’ are coextensive: a creditor has a ‘claim’ against the debtor; the debtor owes a ‘debt’ to the creditor.” S.Rep. No. 989, 95th Cong., 2d Sess. 23, reprinted in 1978 U.S.C.C.A.N. 5787, 5809; H.R.Rep. No. 595, 95th Cong., 2d Sess. 310, reprinted in 1978 U.S.C.C.A.N. 5963, 6267. “By this broadest possible definition ... the bill contemplates that all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.” S.Rep. No. 595, 95th Cong., 2d Sess. 22, reprinted in 1978 U.S.C.C.A.N. 5787, 5808; H.R.Rep. No. 95-595, 95th Cong., 2d Sess. 309, reprinted in 1978 U.S.C.C.A.N. 5963, 6266.
This statutory intent is reflected in the Code‘s definition of “claim” as a “right to payment.”
State law usually determines whether a party has a “right to payment.” Midland Funding, LLC v. Johnson, 581 U.S. 224, 228 (2017). Actions to recover debts in South Carolina must generally16 be
First Financial asserted that, after the repossession and liquidation of Debtor‘s vehicle, Debtor owed a balance of $4,187.57. Debtor asserts First Financial was not a creditor when this bankruptcy case was filed and, therefore, not a party in interest, because any claim First Financial may have had was stale. However, Debtor‘s Response to First Financial‘s Objection concedes that Debtor and First Financial entered into a loan agreement in 2007, and Debtor breached the loan agreement in the same year.17 Further, at the hearing, Debtor‘s counsel agreed that it was “beyond dispute” that after Debtor‘s default on the loan agreement, First Financial sent Debtor a demand letter, declared Debtor in default, repossessed Debtor‘s vehicle, sold the vehicle, and notified Debtor via letter that he still owed First Financial money after the proceeds from the sale of the vehicle were applied to his deficiency.18 By Debtor‘s own description, First Financial had a claim for a deficiency against Debtor. Though that claim may be stale, First Financial is still a “creditor” as that term is defined in the Code. See Amaker v. New, 33 S.C. 28, 11 S.E. at 387; Midland Funding, 581 U.S. 224 at 229. Whether First Financial‘s claim would ultimately be allowed is an issue for another day, but the Supreme Court‘s holding in Midland Funding is clear: the Court should not speculate as to what may happen during the claim allowance process when making this threshold determination as to whether First Financial is a creditor. Since First Financial is a creditor, it has statutory right to be heard as a party in interest to oppose Debtor‘s Motion to Reopen.
b. First Financial‘s Status a Party with a Pecuniary Interest
Moreover, the State Court Litigation is premised on the existence of a pre-petition creditor/debtor relationship between First Financial and Debtor and should have been disclosed as an asset.
Debtor, arguably, is not the real party in interest in the State Court Litigation, following the filing of his 2013 chapter 7 petition.19 Martineau v. Weir, 934 F.3d 385, 391 (4th Cir. 2019). First Financial has incurred costs defending the suit since this bankruptcy case was filed. Debtor‘s requested relief may further prolong the litigation, require First Financial to dedicate additional resources to its defense, and blunt First Financial‘s ability to use a judicial estoppel defense in the State Court Litigation. See Smidt v. Nationstar Mortgage LLC (In re Smidt), No. BAP CC-24-1071-FGL, 2025 WL 863113, at *7 (B.A.P. 9th Cir. Mar. 19, 2025) (holding a defendant in state court litigation brought by the debtor had standing as a party in interest to object to the debtor‘s motion to reopen the case because if the case had been reopened, the defendant would have had to incur additional attorneys’ fees defending against the debtor‘s state court claims and might have lost a judicial estoppel defense). The costs First Financial has and will continue to incur in defending the State Court Litigation are a pecuniary interest directly affected by this bankruptcy imbuing First Financial with statutory status as a party in interest. In re Boyd, 618 B.R. at 146.
II. Article III Standing
Questions concerning the right to be heard as a party in interest in a bankruptcy case are often considered alongside questions of constitutional standing. Because this Court traffics in assets, obligations, and the adjustment of the debtor/creditor relationship, the overlap between the two is nearly seamless. However, the Circuits are split over whether the “right to be heard” as a party in interest incorporates Article III‘s requirements for standing or imposes more stringent limitations.20
Debtor asserts that First Financial must also have Article III standing for the Court to consider its objection. Debtor cites this Court‘s opinion in Boyd in support of this assertion. However, the facts of Boyd are different and, since that case was decided, the Fourth Circuit and the Supreme Court have cast doubt on the notion that a party objecting to relief in this Court must demonstrate Article III standing to be heard.
As courts are split on whether the party in interest standard equates to Article III standing, the courts are also split on whether Article III‘s case-or-controversy requirement even applies to this Court. The Third, Seventh, Eighth, and Tenth Circuits have reasoned that Article III standing requirements apply in proceedings before bankruptcy courts because Article III limitations apply to federal courts and bankruptcy courts are federal courts, without analyzing the issue further.21 In
The Fourth Circuit has recently issued conflicting decisions on whether Article III jurisdictional constraints apply to bankruptcy courts: Truck Ins. Exch. v. Kaiser Gypsum Co., Inc. (In re Kaiser Gypsum Co., Inc.), 60 F.4th 73 (4th Cir.), cert. granted sub nom., 144 S. Ct. 325 (U.S. Oct. 13, 2023) (No. 22-1079), and rev‘d and remanded sub nom., Truck Ins. Exch. v. Kaiser Gypsum Co., Inc., 602 U.S. 268 (2024), and Kiviti v. Bhatt, 80 F.4th 520 (4th Cir. 2023), cert. denied, 144 S. Ct. 2519 (May 13, 2024) (No. 23-729).
In Kaiser Gypsum, the Fourth Circuit held an insurer could not object to the debtor‘s chapter 11 plan because it failed to establish an injury in fact and therefore did not demonstrate its standing to object under Article III, which is “still required in every case.” Id., 60 F.4th 73, 88; n.10. The Fourth Circuit further held that the insurer lacked standing as a party in interest under
Following appeal, Kaiser Gypsum was reversed and remanded. See Truck Ins. Exch., 602 U.S. 268 (2024). The Supreme Court held that the insurer was a party in interest with standing to object to the plan due to its financial responsibility for claims against the debtor under
However, “[o]nce a case is validly referred to the bankruptcy court, the Constitution does not require it be an Article III case or controversy for the bankruptcy court to act,” as the Article III case or controversy requirement comes from the Constitution‘s limits on judicial power, and Bankruptcy Courts do not wield judicial power. Id. (citing In re Technicool Sys., Inc., 896 F.3d 382, 385 (5th Cir. 2018)) (“Bankruptcy courts are not Article III creatures bound by traditional standing requirements.“). Further, the Fourth Circuit reasoned that bankruptcy courts, “as statutory creatures, have whatever power Congress lawfully gives them.” Id.
The Fourth Circuit does not render an explicit holding as to whether Article III standing is required for parties raising objections in bankruptcy courts in Kiviti.
The Court need not reconcile the divergent interpretations of
“To establish constitutional standing, the party must first ‘have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical[.]‘” In re Boyd, 618 B.R. 133, 146 (Bankr. D.S.C. 2020) (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992) (internal citations omitted). Second, the party must establish that the injury in fact is traceable to the conduct at issue. Lujan, 504 U.S. at 560. “Finally the party must show that it is ‘likely‘, as opposed to merely ‘speculative,’ that the injury will be ‘redressed
Debtor‘s Response to First Financial‘s Objection26 accurately notes this Court has found the defendant in a debtor‘s post-petition tort suit lacked constitutional standing to file a motion to reconsider an order reopening the debtor‘s bankruptcy case based on the potential loss of a defense in the tort suit, which the Court deemed too speculative to constitute an injury in fact. See In re Boyd, 618 B.R. at 146. However, unlike the defendant in Boyd, First Financial‘s injury in fact does not depend on the outcome of an unscheduled claim. First Financial has suffered an injury in fact: it has incurred costs over the last 12 years defending the State Court Litigation, which was initiated pre-petition and that Debtor may have had no right to pursue once this case was filed. Those costs are not speculative. See In re Smidt, 2025 WL 863113, at *6 (holding that a state court defendant‘s litigation costs, incurred over eight years defending a lawsuit that the debtor failed to properly schedule in his Chapter 7 case, were an injury in fact and the defendants therefore had Article III standing to object to the debtor‘s third motion to reopen the case). Debtor‘s requested relief could further prolong the State Court Litigation and require First Financial to dedicate additional resources to its defense. At this stage, First Financial has made sufficient factual allegations of an injury in fact to support standing under Article III to object to Debtor‘s Motion to Reopen the case. That injury is traceable to conduct of Debtor and may be redressed by hearing the merits of both Debtor‘s Motion to Reopen and First Financial‘s opposition to it.
A hearing on the merits of Debtor‘s Motion to Reopen and the objection by First Financial shall be heard on September 9, 2025. In addition to the requirements of the Scheduling Order entered July 22, 2025, the parties are directed to file a joint statement of dispute on or before September 2, 2025, using the appropriate local form.
AND IT IS SO ORDERED.