Rule 1009(a) provides that schedules “may be amended by the debtor as a matter of course at any time before the case is closed.” In In re Awan, 2017 WL 4179816 (Bankr.C.D.Ill.), the court dealt with the split whether a debtor has an automatic right to amend his/her schedules after his/her case was closed and subsequently reopened.
In Awan, the debtor filed his voluntary Chapter 7 petition on July 31, 2013. On September 12, 2013, following the meeting with creditors, the Chapter 7 Trustee filed her Report of No Distribution indicating that there was no property available for distribution to creditors. An order granting the debtor’s discharge was subsequently entered, and on November 29, 2013, the case was closed. On February 9, 2017, the United States Trustee filed a Motion to Reopen Case and Appoint Trustee alleging that the Debtor had a previously undisclosed claim for a personal injury. Following a hearing, the case was reopened and the Trustee was reappointed.
The trustee requested that the attorneys be employed retroactively to complete the settlement that was negotiated between the time the debtor’s Chapter 7 case was closed and the time it was reopened. On August 9, 2017, however, the debtor filed his Amended Schedules A/B and C, formally disclosing for the first time the personal injury claim settled by the trustee and claiming a $15,000 exemption in the settlement proceeds under Illinois law.
Awan noted a split among the courts interpreting the text of Rule 1009(a) with respect to this question. It found that some cases addressing the issue interpreted the language of Rule 1009(a) as prohibiting amendments in reopened cases. At the other end of the spectrum, a number of cases construed Rule 1009(a) as applying equally in open and reopened cases, thus allowing debtors to amend their schedules as a matter of course in reopened cases. A third line of cases, including In re Smith 2014 WL 7358808 (Bankr.D.N.M.) hold that Federal Rule of Bankruptcy Procedure 9006(b)(1) conditions a debtor’s ability to amend schedules in a reopened case upon a showing that the failure to amend before case closure was due to excusable neglect. Id. at *3–4. Awan was persuaded by this third approach and held that Rule 9006(b)(1) governs the ability of a debtor to amend schedules in a reopened case. Id. at *2.
The court stated that Rule 1009(a) plainly provides that schedules “may be amended by the debtor as a matter of course at any time before the case is closed.” The court went on to note that reopening a case did not change the fact that it has been closed and, by the plain language of Rule 1009(a), the liberal right to amend schedules ends when a case has been closed. Id. at *3. It noted that while some courts interpreted the phrase broadly, drew no distinction between an open case and a reopened case, such a circular interpretation would render the rule’s limitation completely illusory and, therefore, meaningless.
It is, of course, true that nothing in Rule 1009 prohibits amendments to schedules in reopened cases. But the absence of any reference to such a circumstance must not be equated with some tacit approval by the legislature. “If the drafters had wanted to allow amendments [as a matter of course] ‘at any time,’ ‘at any time the case is open,’ or ‘unless the case is closed,’ they would have said so.” [quoting In re Bartlett, 326 B.R. 436, 439 (Bankr.N.D.Ind.2005] Unless this Court is to ignore the plain language of Rule 1009, the Debtor’s right to amend his Schedule C as a matter of course ended when his case closed on November 29, 2013.
Id. at *3. Rule 9006(b)(1), in turn, which provided, in pertinent part:
[W]hen an act is … allowed to be done at or within a specified period by these rules …, the court for cause shown may at any time in its discretion … on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.”
Applying the Rule to the facts of its instant case, the court noted that here, the debtor did not request an extension of time to file his Amended Schedule C or even attempt to make a showing of excusable neglect, despite the Court giving him an additional opportunity to do so. “As such, the Trustee’s objection to the Debtor’s claim of exemption in the settlement proceeds must be sustained.” Id. at *3.
In re Muscato, 582 B.R. 599 (Bankr.W.D.N.Y.2018) came to a different conclusion. In this reopened case, the Chapter 7 trustee objected to the debtor’s claim of exemption for a previously undisclosed interest in real property. The exemption was claimed through an amendment made to the debtor’s Schedule C after the case was reopened. The central issue involves the extent to which this Court can disallow a valid but tardily claimed exemption.
The court here ruled that the outcome of this dispute was resolved by Law v. Siegel, 571 U.S. – , 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014), which held that a bankruptcy trustee could not surcharge an exemption for administrative costs that resulted from the debtor’s fraudulent misrepresentation. Muscato noted that [“i]n reaching this result, the Court recognized a broad entitlement to the benefit of a statutorily allowed exemption, without regard to the good faith of the debtor or prejudicial impact on the bankruptcy estate.” Id. at 601. The court noted that because the debtor’s case had previously been closed, the debtor could not simply amend her schedules, but needed also to reopen her case. Citing to Section 350(b) of the Bankruptcy Code, the court then stated:
Indeed, section 350(b) expressly acknowledges that a proper purpose of reopening is “to accord relief to the debtor.” Pursuant to 11 U.S.C. §522, bankruptcy relief includes the right to enjoy the benefit of all allowable exemptions. Upon the reopening of this case, the debtor duly amended her schedules to claim an exemption. The denial of this opportunity would serve as a mere subterfuge for disallowing a proper exemption.
Id. at 602. The court then rejected those decisions which hold that amendments to schedules in reopened cases is only allowable upon a showing of “excusable neglect” under Bankruptcy Rule 9006(b). It did so by quoting the rules which states:
[W]hen an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion … on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect. (emphasis added)
The court noted that Rule 9006(b) speaks to a specific period, and not to an indeterminate span of time whose length is not precisely set. Simply, Rule 1009 does not require that exemption schedules be amended “within a specified period.” Id. at 603.
Matthew T. Gensburg
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