Victoria Calixto
Debtor Victoria Calixto seeks to reopen her chapter 13 bankruptcy case so that she can file amended bankruptcy schedules to disclose a post-confirmation personal injury claim against Gulfstream Park Racing Association, Inc., which she had not previously disclosed in her bankruptcy case. Gulfstream opposes her motion, arguing it is an improper attempt avoid an adverse summary judgment ruling in state court litigation based on her failure to disclose this claim. For the reasons discussed below, the Court will grant her motion.
The Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code on June 30, 2017.1 Together with her bankruptcy petition, she filed all of her required bankruptcy schedules, her statement of financial affairs, and a creditor matrix listing the names and addresses of her creditors.2 The same day she filed her petition, she also filed a chapter 13 plan,3 a statement of her current monthly income and calculation оf plan commitment period,4 and a certification that she had taken the required budget and credit counseling course.5
But her chapter 13 plan – as originally filed – could not be confirmed, and so on October 20, 2017, the Court dismissed her case.6 Ten days later, however, she filed a motion to reinstate her case,7 and on the day of the hearing on that motion, she filed a first amended chapter 13 plan.8 On November 22, 2017, the Court granted her motion to reinstate.9 She then filed a second amended plan on February 23, 2018,10 and on March 20, 2018, she filed a third amended plan.11 Her third amended plan proposed monthly plan payments of $330.00 for the first ten months, and $293.00 for
On April 30, 2018, the Court entered an order confirming her third amended plan,14 and on July 5, 2018, the Court entered an amended confirmation order.15 The Debtor then made all of her required plan payments16 – paying all of her creditors 100% of their allowed claims17 – and on June 1, 2022, she received a discharge under
On March 17, 2021 – about three years after her plan was confirmed, and a little more than a year before she completed her plan payments – the Debtor alleges that she slipped and fell at the premises owned and operated by Gulfstream. On June 30, 2022 – about a month after receiving her discharge – she then sued Gulfstream for negligence in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida.20 The Debtor never amended her bankruptcy schedules to disclose this post-confirmation litigation claim.
Gulfstream moved for summary judgment in the state court, arguing that the Debtor lacked standing and was judicially estopped from pursuing the case because
Analysis
Bankruptcy Code section 350(b) provides that a closed bankruptcy case may bе reopened “to administer assets, to accord relief to the debtor, or for other cause.”23 Bankruptcy courts have broad discretion to reopen a closed case,24 and in deciding whether to reopen a case, courts “generally consider the benefit to creditors, the benefit to the debtor, the prejudice to the affected party and other equitable factors.”25 To properly analyze these factors in this case, it is important tо first understand the differences between a chapter 13 bankruptcy case and a chapter 7 bankruptcy case for individual debtors. With an understanding of those differences, the Court will then examine whether the litigation claim is property of the Debtor’s bankruptcy estate, whether she was required to disclose it, and how (if at all) lack of disclosure affected her bankruptcy estate and its creditors.
I. Chapter 13 Bankruptcy Cases vs. Chapter 7 Bankruptcy Cases.
Individual debtors most commonly file for bankruptcy under either chapter 13 or chapter 7 of the Bankruptcy Code.26 A chapter 7 case is a liquidation, in which the debtor surrenders to a trustee all non-exempt property she owned as of the petition
While there is a trustee in chapter 13 cases, the chapter 13 trustee’s duties differ significantly from that of a chapter 7 trustee. Unlike a chapter 7 trustee, a chapter 13 trustee does not have a duty to liquidate property of the estate.31 Rather, the chapter 13 trustee collects the debtor’s plan payments,32 retains those payments pending confirmation of the plan,33 and if the plan is confirmed, distributes the payments to creditors in accordance with the plan.34 Another important consequence of confirmation is that if the plan is confirmed, unless the plan or confirmation order say otherwise, confirmation vests all property of the estate back in the debtor.35
But in a chapter 13 case – regardless of whether it is property of the estate or has re-vested in the debtor – only the individual debtor can bring a litigation claim.39 Further, because a chapter 13 plan is funded from a debtor’s income (rather than her assets), successful prosecution of a litigation claim in a chapter 13 case is usually less important to creditor recoveries – particularly when a debtor will repay her unsecured creditors 100% of their claims from her regular income.40
II. The Litigation Claim Was Property of the Debtor’s Bankruptcy Estate.
Whether under chapter 7 or chapter 13, upon the filing of a bankruptcy petition an estate is created.41 With certain еxceptions, Bankruptcy Code section 541 provides that the estate consists of all legal or equitable interests of the debtor in property as of the commencement of the case.42 Under section 541(a)(5), certain property interests
In a chapter 7 case, there is a clear distinction between property the debtor acquires after the commencement of the case and property the estate acquirеs after the commencement of a case. This is less clear in a chapter 13 case. In a chapter 13 case, Bankruptcy Code section 1306 provides that property of the estate also includes (in addition to the property specified in section 541): (1) all property listed in section 541 that the debtor acquires after the commencement of the case (but before the case
Bankruptcy Code section 1327(b) then states that, unless otherwise provided in the plan or confirmation order, upon confirmation of a chapter 13 plan, all property of the estate vests in the debtor.46 This means that any property that was property of the estate under sections 541 and 1306 reverts to – and becomes – property of the debtor upon confirmation. But what about property the debtor acquires after confirmation of her plan, but bеfore she completes her plan payments, obtains a discharge, and her case is closed – like the litigation claim here? Under section 1306(a)(1), it seems clear that the Debtor’s litigation claim against Gulfstream was property of her bankruptcy estate.47 That is because it is property of a kind specified in section 541 (a legal or equitable interest of the debtor in property), that the debtor
III. Eleventh Circuit Case Law Required the Debtor to Disclose the Litigation Claim on Her Bankruptcy Schedules.
Bankruptcy Code section 521 requires debtors to file with the Bankruptcy Court a schedule of their assets and liabilities49 and a statement of financial affairs.50 This is where a debtor would disclose the existence of a litigation claim and any actual pending litigation as of the petition date. Federal Rule of Bankruptcy Procedure 1007 sets forth the detailed requirements for сomplying with the statutory requirements to make these disclosures, including as to timing. Schedules of assets and liabilities and statements of financial affairs must be filed with the bankruptcy petition, or within 14 days thereafter.51
Federal Rule of Bankruptcy Procedure 1007(h) then specifically addresses “Interests Acquired or Arising After Petition.” At the time this case was filed – and at the time the motion to reopen was filed – Rule 1007(h) read, in relevant part, as follows:
If, as provided by §541(a)(5) of the [Bankruptcy] Code, the debtor acquires or becomes entitled to acquire any interest in property, the debtor shall within 14 days after the information comes to the debtor’s knowledge or within such further time the court may allow, file a supplemental schedule in the . . . chapter 13 individual debt adjustment case. If any of the property required to be reported under this subdivision is claimed by the debtor as exempt, the debtor shall claim the exemptions in the supplemental schedule. The duty to file a supplemental sсhedule in accordance with this subdivision continues
notwithstanding the closing of the case, except that the schedule need not be filed in a . . . chapter 13 case with respect to property acquired after entry of the order . . . discharging the debtor in a . . . chapter 13 case.52
It should be emphasized that Rule 1007(h) by its plain terms only applies to property a debtor acquires or becomes entitled to acquire under Bankruptcy Code section 541(a)(5), which, again, addresses inheritances, divorce settlements, and life insurance proceeds acquired within 180 days of the petition date.53 But no provision of Rule 1007 contains any requirements as to when or how a chapter 13 debtor is to amend her schedules to disclose a post-confirmation litigation claim that becomes property of her estate under section 1306(a)(1).54
In the Eleventh Circuit, however, case law is clear that a chapter 13 debtor has a “continuing duty” to amend her bankruрtcy schedules to disclose a post-confirmation litigation claim.55 Application of the Bankruptcy Code and Bankruptcy
(a) General Right to Amend. A voluntаry petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. The debtor shall give notice of the amendment to the trustee and to any entity affected thereby. On motion of a party in interest, after notice and a hearing, the court may order any voluntary petition, list, schedule, or statement to be amended and the clerk shall give notice of the amendment to entities designated by the cоurt.56
Thus, the Eleventh Circuit has concluded that “Rule 1009 is a proper vehicle”57 to disclose a post-petition litigation claim that became property of a chapter 13 debtor’s estate under section 1306(a)(1).
IV. Even if the Debtor Disclosed the Litigation Claim, It Would Not Have Affected Her Chapter 13 Bankruptcy Estate or Her Creditors.
But even if the Debtor had previously disclosed the litigation claim – or if the Court permits her to reopen her case now to disclose it – it would not have, and will not have, any effect on her bankruptcy estate or her creditors. This is due to the nature of chapter 13 bankruptcy cases generally (as discussed above), as well as the
V. Reopening the Case Will Benefit the Debtor, and Will Not Prejudice Gulfstream.
“[A]ccurate self-reporting is the bedrock upon which our bankruptcy system functions,”58 and therefore “‘the importance of full and honest disclosures cannot be overstated.’”59 As the Eleventh Circuit noted in Slater v. United States Steel Corp., 871 F.3d 1174 (11th Cir. 2017),60 however:
the Bankruptcy Code and Rules liberally permit debtors to amend their disclosurеs when an omission is discovered. Yes, the Bankruptcy Code requires debtors to disclose all their assets, including contingent and unliquidated claims. . . . But Bankruptcy Rule 1009, which was proposed by the Supreme Court and adopted by Congress, permits a debtor to amend a schedule or statement “as a matter of course at any time before the case is closed.” . . . Further, the bankruptcy court retains broad discretion to reopen a closed case on a motion of the debtоr or another party in interest “to administer” an asset that had not previously been scheduled.
11 U.S.C. § 350(b) . It strikes us as inconsistent with these principles—which recognize that omissions occur and liberally allow amendment and correction of disclosures —to infer that a debtor who failed to disclose a lawsuit necessarily meant to manipulate the bankruptcy proceedings.61
Accordingly, there will be no benefit to creditors in reopening this case to allow the Debtor to file amended schedules to disclose this post-confirmation litigation claim. But there also will be no detriment to creditors. They have already been paid 100% of their pre-petition claims – the maximum amount to which they are entitled in a chapter 13 bankruptcy case. The Debtor, however, will benefit from reopening
Conclusion
While this post-confirmation litigation claim was property of the Debtor’s estate, there is no requirement in the text of the Bankruptcy Code or Bankruptcy Rules that she amend her schedules to disclose the claim. But Eleventh Circuit cаse law imposes this requirement, although it does not specify when this must be done. Accordingly, because the Court may reopen a chapter 13 case “to accord relief to the debtor, or for other cause,” the Court concludes that it is appropriate to reopen the case here, to permit the Debtor to file amended bankruptcy schedules to disclose her post-confirmation litigation claim against Gulfstream in this 100%-payment, completed, and discharged chapter 13 case.
ORDERED that:
- The motion to reopen66 is GRANTED.
- Within 14 days of entry of this Order, the Debtor must file amended bankruptcy schedules and an amended statement of financial affairs.
- After the Debtor files her amended bankruptcy schedules and amended statement of financial affairs, the Clerk of Court is directed to re-close the case.
# # #
Copies furnished to all interested parties by CM/ECF.
Scott M. Grossman
United States Bankruptcy Judge