UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ULMER KIRK FIGHTMASTER
d/b/a Kirk's Auto Body Repair
DEBTOR CASE NO. 93-20248
This matter is before the Court on the debtor's Motion to Reopen, filed herein August 5, 1996. This case was closed on December 2, 1993. The debtor's Motion states that he seeks to reopen his case in order to add a creditor. That creditor, Stephen Phillips ("Phillips"), filed an Objection to Motion to Reopen on August 19, 1996. A hearing on the Motion and Objection was conducted on September 3, 1996.
The debtor's Motion states that Phillips was a creditor of the debtor prior to the filing of his bankruptcy petition. Phillips' Objection states that he and the debtor entered into a contract on January 1, 1991, which contract and its terms are the subject of a state court action in Kenton Circuit Court, Case No. 94-CI-01308. This case has been continued pending the outcome of the debtor's attempt to reopen his case.
Phillips contends that reopening this case would be prejudicial to him because he has incurred costs and expenses in prosecuting his state court action against the debtor. He asks that the Court require the debtor to reimburse him for these costs if the case is reopened. Phillips' counsel has informed the Court that more than thirty hours have been expended in the state court action.
The law in the Sixth Circuit regarding the reopening of cases is embodied in In re Rosinski, 759 F.2d 539 (1985). There the court stated that a debtor may be prevented from amending schedules only if the failure to include a creditor on original schedules prejudiced the creditor in some way or was "part of a scheme of fraud or intentional design." Id., at page 541. The court followed the reasoning of the Seventh Circuit in Matter of Stark, 717 F.2d 322 (1983), wherein that court found that
...In a no-asset bankruptcy where notice has been given pursuant to Rule 203(b), a debtor may reopen the estate to add an omitted creditor where there is no evidence of fraud or intentional design. In this case the creditor has not been harmed in any way, and the debtors have not been required to forfeit any of their benefits under the Bankruptcy Code.
At page 324.
In assessing the question of prejudice to the creditor, the primary factors to be considered, therefore, are the existence of assets and the creditor's position in the bankruptcy case. The Rosinski court stated:
Though there was no factual finding that there was adequate notice given in the case at bar, Ms. Rosinski, like the Starks, does not possess assets subject to the claims of creditors, thus making it unnecessary to file a claim unless additional assets are discovered. If assets are found and a payment of dividends appears possible, creditors are to be notified and granted a reasonable time to file their claims. ....
In the case at bar, it is clear that there are no assets from which creditors may be paid a dividend and there is no prejudice to [the creditor] with respect to relief available to him under the law. Though he did not receive earlier notice, [he] has not lost his opportunity to file a proof of claim sufficient for him to share equally with creditors who were initially scheduled. ....
Under the Code, only the creditors' rights to participate in a dividend and to obtain a determination of dischargeability are of such importance that their lost (sic) mandates exception of a late scheduled debt from discharge.
At page 542. The record herein reveals that this is a no-asset case, and the court's reasoning in regard to prejudice to the creditor, as set out above, is applicable. The creditor herein makes no representations as to the dischargeability of the debt owed to him by the debtor, and this Court therefore assumes that it is dischargeable.
The Rosinski court also considered the question of the debtor's justification for the reopening, and whether it was sufficient to show that she did not intentionally or recklessly avoid listing the debt. The court concluded that the debtor had reasonably assumed that the creditor had received notice of her filing, and that "[a]t the very least, [she] did not engage in fraud or a scheme in omitting [the creditor] from the schedule." Id., at page 542.
Here the debtor has advanced no justification for the reopening of his case, nor has he made any statement concerning lack of notice to the creditor. The creditor, however, has not alleged that his omission was "part of a scheme of fraud or intentional design," and the Court will therefore assume that this is not an issue herein. As concerns Phillips' contention that reopening the case will be prejudicial to him, this Court believes that the court's ruling in Rosinski negates that contention.
In view of the fact that in the Sixth Circuit amendments to schedules are liberally granted, this Court is of the opinion that the debtor herein should be allowed to reopen his case to add Phillips as a creditor. The Court will reserve ruling on the creditor=s request for costs pending filing by the creditor of some written indication of the amount of those costs. An order in conformity with this opinion will be entered separately.
By the Court -
Henry Curry, Esq.
Lori A. Schlarman, Esq.