UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

FRANKFORT DIVISION

IN RE:

ROY JUNIOR REDMON

TERESA MARIE REDMON

DEBTORS CASE NO. 93-30271

PAUL GAINES, Administrator of

the Estate of Virginia Gaines PLAINTIFF

VS. ADV. NO. 95-3002

ROY J. REDMON and

SIDNEY N. WHITE, Chapter 13 Trustee DEFENDANTS

MEMORANDUM OPINION

This matter is before the Court on the plaintiff's Motion for Summary Judgment, and the defendant's Motion to Require Plaintiff to Release Judgment Lien. These motions were submitted for decision by an Agreed Order of Submission and an Order of Submission, respectively, both dated July 26, 1995. This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I).

The plaintiff initiated this matter by the filing of his Complaint on February 23, 1995. Therein he alleged that the defendant owed a debt to the plaintiff which was non-dischargeable pursuant to 11 U.S.C. ''523(a)(4) and (a)(3)(B). The defendants filed their Answer on April 25, 1995, and their Motion to Dismiss and to Require Plaintiff to Release Judgment Lien on June 6, 1995. The Motion to Dismiss sought to have defendant Teresa M. Redmon dismissed from this action because the Partial Summary Judgment obtained by the plaintiff in Franklin Circuit Court concerning the subject debt was only against defendant Roy J. Redmon.

A hearing on the defendants' Motions was conducted on July 12, 1995. At the hearing the parties indicated their intent to enter into an Agreed Order concerning the Motion to Dismiss. The Motion to Require Plaintiff to Release Judgment Lien was taken under submission. The Agreed Order dismissing Teresa M. Redmon was entered on July 25, 1995.

The plaintiff filed a Response to Motion to Require Release of Judgment Lien on July 13, 1995. He filed his Motion for Summary Judgment on July 17, 1995. The Agreed Order of Submission of the Motion for Summary Judgment was filed as set out above. It represents that the defendant declined to plead further. There is, therefore, no response from the defendant to the plaintiff's Motion for Summary Judgment.

On July 26, 1995, the Chapter 13 Trustee filed his Opposition of Trustee for Motion for Summary Judgment. The plaintiff filed a Response on August 7, 1995. The Trustee then filed a Motion to Set-Aside concerning the Agreed Order of Submission on August 23, 1995. That Motion was heard on September 13, 1995, at which time the parties represented that they would enter into an Agreed Order concerning the Trustee's entry into this matter. That Agreed Order was entered on September 18, 1995. It allowed the addition of the Chapter 13 Trustee as a party defendant and submitted the matter for decision.

The debtors filed their Chapter 13 case in this Court on September 7, 1993. Their schedules did not include any reference to a debt owed by the debtor/defendant Roy J. Redmon to the plaintiff. The record indicates, however, that the plaintiff obtained a Partial Summary Judgment in Franklin Circuit Court on October 7, 1994, on his Complaint against the defendant for the wrongful taking of funds from Virginia Gaines, the plaintiff's decedent, while acting in a fiduciary capacity pursuant to a power of attorney. The claim, filed on March 30, 1993, was pending in Franklin Circuit Court when the debtors filed their Chapter 13 petition. The Judgment awarded the plaintiff $58,901.86, representing the total of a number of certificates of deposit owned by Virginia Gaines. The defendant had taken possession of these certificates of deposit and failed to provide any accounting for the whereabouts of the money. The plaintiff obtained a Judgment Lien on October 10, 1994.

The Court will first consider the defendant's Motion to Require Plaintiff to Release Judgment Lien. The Motion states that the judgment lien "impermissibly encumbers the debtors' bankruptcy" and is a violation of the automatic stay. As to the latter, the record in this case indicates that the plaintiff obtained relief from stay on July 5, 1994, after inadvertently finding out about the filing of the bankruptcy case, to pursue this matter in the Franklin Circuit Court. There is, therefore, no violation of the automatic stay. While the lien may encumber property which the defendant might claim as exempt, he has not advanced that argument and it is not before the Court. This Court is therefore of the opinion that the defendant's Motion should be overruled.

The plaintiff's Motion for Summary Judgment contends that the defendant's debt to the estate of Virginia Gaines is non-dischargeable pursuant to 11 U.S.C. ' 523(a)(3)(B). That subsection provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt---

(3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit---

(B) if such debt is of a kind specified in paragraph (2), (4) or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request;

The plaintiff has alleged that the debt is of a kind specified in '523(a)(4) in that it constitutes a debt for defalcation while acting in a fiduciary capacity. The plaintiff further contends that there is no genuine issue as to any material fact concerning the existence of the debt, the nature of the debt, the failure to list or schedule the debt in the defendant's bankruptcy case, and the plaintiff's lack of notice of the filing of the bankruptcy case in time to file a timely proof of claim and a timely request for determination of dischargeability. The defendant refutes none of this.

The Chapter 13 Trustee, however, has raised the issues of the applicability of '523(a)(3)(B) in a Chapter 13 case, and whether the question of dischargeability is ripe for resolution unless the court knows the debtors have successfully completed payments under the plan. Both of these issues go to the nature of a Chapter 13 case. The Trustee points out that pursuant to 11 U.S.C. '1328(a)(2), the only debts excepted from discharge in a Chapter 13 case are those treated in '523(a)(5), (8) and (9). The plaintiff responds that '1328(a)(2) does not apply in this case because this provision deals with debts which have been provided for in the plan, and the subject debt is not provided for in the plan filed by the debtor herein.

The plaintiff cites In re Greenburg, 151 B.R. 709 (Bkrtcy.E.D.Pa. 1993), in support of the proposition that the completion of payments under a Chapter 13 plan does not discharge a debt which was neither listed nor scheduled by the debtor in his bankruptcy petition. The Greenburg court does indeed come to that conclusion, but in the process states that '523(a)(3) is not applicable in Chapter 13 cases, for the same reason set out above by the Trustee. Id., at page 713. The Greenburg opinion therefore produces the result the plaintiff seeks, but not in conformity with the plaintiff's reasoning. The court states:

[A]n omitted creditor... who receives no notice of any significant events in a Chapter 13 case...will not have the debt owed to that creditor discharged. .... [T]he omission of creditors may even jeopardize a Chapter 13 debtor's entire bankruptcy case. On the basis of similar reasoning, we would not hesitate to conclude that a calculated omission of certain creditors could constitute bad faith, which would jeopardize confirmation of a debtor's plan or discharge.

At page 716. The plaintiff has not cited any other authority in support of his position that '523(a)(3) excepts this debt from discharge.

Other courts have specifically held that debts of the same nature as that being considered here are dischargeable in Chapter 13 cases. In In re Brian Price Lewis, 5 B.R. 575 (Bkrtcy.N.D.Ga. 1980), the court concluded that "debts which would be nondischargeable under 11 U.S.C. '523(a)(2), (4) or (6) in a Chapter 7 case are dischargeable in a case filed under Chapter 13 ..." At page 576. The courts in In re Osborne, 8 B.R. 200 (Bkrtcy.N.D.Ill. 1981) and In re Tackaberry, 13 B.R. 881 (Bkrtcy.D.Minn. 1981) came to similar conclusions.

In consideration of all of the foregoing it is therefore the opinion of this Court that the plaintiff has not demonstrated that he is entitled to judgment as a matter of law that the defendant's debt to him is excepted from discharge pursuant to 11 U.S.C. '523(a)(3), and that his Motion for Summary Judgment should therefore be overruled. An order in conformity with this opinion will be entered separately.

Dated:

By the Court -

_____________________________________

Judge

Copies to:

Debtors

Richard M. Guarnieri, Esq.

Sidney N. White, Esq,, Chapter 13 Trustee

Ginger Knight, Esq.