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    Harold J. HAWKINS and Eugenia B. Hawkins, Appellants, v. Landmark Finance Company, Appellee. in Re Harold J. HAWKINS and Eugenia B. Hawkins, Debtors

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    The debtors erroneously listed a debt to Landmark Finance as unsecured rather than secured by a lien on household furnishings. After discharge, Landmark began foreclosure proceedings, so the debtors sought to reopen the bankruptcy case to avoid the lien. The bankruptcy and district courts denied reopening. The appellate court affirmed, finding that reopening is discretionary and the lower courts did not abuse discretion, as Landmark would be prejudiced by costs incurred in relying on the finalized bankruptcy proceedings. One judge dissented, believing Landmark was not truly prejudiced.

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    Harold J. HAWKINS and Eugenia B. Hawkins, Appellants, v. Landmark Finance Company, Appellee. in Re Harold J. HAWKINS and Eugenia B. Hawkins, Debtors

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    Scribd Government Docs
    64 views5 pages
    The debtors erroneously listed a debt to Landmark Finance as unsecured rather than secured by a lien on household furnishings. After discharge, Landmark began foreclosure proceedings, so the debtors sought to reopen the bankruptcy case to avoid the lien. The bankruptcy and district courts denied reopening. The appellate court affirmed, finding that reopening is discretionary and the lower courts did not abuse discretion, as Landmark would be prejudiced by costs incurred in relying on the finalized bankruptcy proceedings. One judge dissented, believing Landmark was not truly prejudiced.

    Original Description:

    Filed: 1984-02-07 Precedential Status: Precedential Citations: 727 F.2d 324 Docket: 83-1497

    Original Title

    Harold J. Hawkins and Eugenia B. Hawkins v. Landmark Finance Company, in Re Harold J. Hawkins and Eugenia B. Hawkins, Debtors, 727 F.2d 324, 4th Cir. (1984)

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    The debtors erroneously listed a debt to Landmark Finance as unsecured rather than secured by a lien on household furnishings. After discharge, Landmark began foreclosure proceedings, so the debtors sought to reopen the bankruptcy case to avoid the lien. The bankruptcy and district courts denied reopening. The appellate court affirmed, finding that reopening is discretionary and the lower courts did not abuse discretion, as Landmark would be prejudiced by costs incurred in relying on the finalized bankruptcy proceedings. One judge dissented, believing Landmark was not truly prejudiced.

    Copyright:

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    64 views5 pages

    Harold J. HAWKINS and Eugenia B. Hawkins, Appellants, v. Landmark Finance Company, Appellee. in Re Harold J. HAWKINS and Eugenia B. Hawkins, Debtors

    Uploaded by

    Scribd Government Docs
    The debtors erroneously listed a debt to Landmark Finance as unsecured rather than secured by a lien on household furnishings. After discharge, Landmark began foreclosure proceedings, so the debtors sought to reopen the bankruptcy case to avoid the lien. The bankruptcy and district courts denied reopening. The appellate court affirmed, finding that reopening is discretionary and the lower courts did not abuse discretion, as Landmark would be prejudiced by costs incurred in relying on the finalized bankruptcy proceedings. One judge dissented, believing Landmark was not truly prejudiced.

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    of 5

    727 F.

    2d 324
    10 Collier Bankr.Cas.2d 94, 11 Bankr.Ct.Dec. 1250,
    Bankr. L. Rep. P 69,763

    Harold J. HAWKINS and Eugenia B. Hawkins, Appellants,


    v.
    LANDMARK FINANCE COMPANY, Appellee.
    In re Harold J. HAWKINS and Eugenia B. Hawkins, Debtors.
    No. 83-1497.

    United States Court of Appeals,


    Fourth Circuit.
    Argued Dec. 8, 1983.
    Decided Feb. 7, 1984.

    James C. Sarratt, Greenville, S.C. (William T. Clarke, Greenville, S.C., on


    brief) for appellants.
    Lawrence W. Johnson, Jr., Columbia, S.C. (James M. Brailsford, III,
    Robinson, McFadden, Moore, Pope, Williams, Taylor & Brailsford, P.A.,
    Columbia, S.C., on brief), for appellee.
    Before WINTER, Chief Judge, WIDENER, Circuit Judge, and
    MICHAEL,* District Judge.
    HARRISON L. WINTER, Chief Judge:

    The debtors in this bankruptcy proceeding erroneously listed a debt owed


    Landmark Finance Company (Landmark) as unsecured when it was in fact
    secured. The nature of the security was such that, under state law, it could have
    been avoided. After the case was closed following the debtors' discharge,
    Landmark began proceedings to foreclose on its security, and the debtors then
    sought to reopen their case so as to file a lien avoidance action. From an order
    of the district court affirming the bankruptcy court's denial of their motion, they
    appeal.

    We affirm.

    I.
    3

    The voluntary petition in bankruptcy under Chapter 7 was filed by Harold J.


    Hawkins and Eugenia B. Hawkins, both residents of South Carolina, on June 7,
    1981. The petition claimed the federal exemption for their furniture, and it
    listed Landmark as an unsecured creditor to which they owed $3,246.58. In
    fact, Landmark had a nonpossessory, nonpurchase-money lien on the furniture.
    Landmark had notice of the erroneous listing, but it voiced no correction.
    During the pendency of the bankruptcy proceedings, the Hawkins filed no
    proceeding under 11 U.S.C. Sec. 522(f)(2)(A), which authorizes a debtor to
    avoid a lien, to the extent that the lien impairs an exemption to which the
    debtor is entitled, if the lien is a nonpossessory, nonpurchase-money security
    interest in household furnishings. It is unquestioned that the Hawkins might
    have avoided Landmark's lien, based upon the provisions of S.C.Code Ann.
    Sec. 15-41-200 (1982 Supp.).1

    On September 8, 1981, the debtors were discharged and the estate closed.
    Thereafter Landmark instituted a "claim and delivery" action in a South
    Carolina state court, the purpose of which was to enforce its lien on the
    Hawkins' furniture. The Hawkins, on May 25, 1982, moved under 11 U.S.C.
    Sec. 350(b)2 to reopen their bankruptcy case for the purpose of instituting a lien
    avoidance proceeding. The bankruptcy court denied their motion, and the
    district court affirmed the bankruptcy court's order.

    II.
    5

    Our decision in this case turns largely on the meaning to be given Sec. 350(b).
    The debtors contend that we should adopt a per se rule that a debtor has the
    right in all instances to reopen a closed case to file a post-discharge lien
    avoidance complaint. Some courts have so held.3 But there is no unanimity in
    this regard. Other courts have held that debtors never can file post-discharge
    complaints.4 A third line of authority has taken a middle ground, holding that
    the right to reopen a case depends upon the circumstances of the individual
    case and that the decision whether to reopen is committed to the court's
    discretion.5

    We think that the discretionary view is the better one, and we adopt it as the
    rule in this circuit. The statute is phrased in permissive language, and we think
    that it would do violence to the statute either to say that a closed case must be
    reopened or that a closed case may never be reopened. We placed the same
    interpretation on former Bankruptcy Rule 515, the language of which was
    almost identical to that of Sec. 350, and we see no reason to depart from it now

    that the rule has been enacted as a statute. See Matter of Seats, 537 F.2d 1176,
    1177 (4 Cir.1976).
    7

    Because we conclude that the reopening of a closed case is a discretionary


    matter, it follows that our review is limited to a determination of whether there
    was an abuse of discretion on the part of the bankruptcy court in refusing to
    reopen this case. We think that there was not. It is, of course, true that despite
    notice of the mistake on the part of the debtors, Landmark made no effort to
    correct it. But we are aware of no duty on the part of Landmark to speak. It had
    the right to rely on the debtors, who were represented by counsel, to assert their
    own rights.

    Landmark argues that it would be prejudiced if the case were reopened because
    it would lose its security interest. We are not impressed by this argument. We
    do not think that Landmark can assert the denial of an accidental benefit that it
    obtained as a result of a mistake on the part of the debtors or their counsel as
    prejudice. But the fact remains that the debtors did not seek to reopen their case
    for over eight months and, then, not until Landmark had instituted foreclosure
    proceedings in a state court. While the record does not disclose the exact
    amount, undoubtedly Landmark incurred court costs and counsel fees in
    reliance on the fact that the debtors did not challenge the validity or viability of
    its lien. In this we find prejudice and a sufficient basis on which the bankruptcy
    court could properly conclude, in the exercise of its discretion, that the case
    should not be reopened.

    Because there was therefore no abuse of discretion on the part of the


    bankruptcy court in declining to reopen the case, the decision of the district
    court sustaining the refusal is
    AFFIRMED.6
    WIDENER, Circuit Judge, dissenting:

    10

    I agree with all of the opinion of the court except the last sentence of the
    penultimate paragraph thereof, as well as the concluding paragraph of the
    opinion.

    11

    I do not think the incurrence of court costs and counsel fees by the lienholder,
    in seeking to enforce its lien, constitutes prejudice in the legal sense so as to
    provide a sufficient basis for the bankruptcy court to exercise its discretion in
    favor of not reopening the case.

    12

    I think the case boils down to, in the words of the majority opinion, "an
    accidental benefit that it [Landmark] obtained as a result of a mistake on the
    part of the debtors or their counsel." And I agree with the majority that such
    should not constitute prejudice sufficient to support the action of the district
    court.

    13

    That being true, I am of opinion it was an abuse of discretion not to reopen the
    case, and thus respectfully dissent.

    Honorable James H. Michael, Jr., United States District Judge for the Western
    District of Virginia, sitting by designation

    Section 15-41-200 to the extent pertinent provides:


    The following real and personal property of a debtor domiciled in this State
    shall be exempt from attachment, levy and sale under any mesne or final
    process issued by any court or bankruptcy proceeding:
    ....
    (3) The debtor's interest, not to exceed two thousand five hundred dollars in
    aggregate value in household furnishings [and] household goods ... that are
    held primarily for the personal, family or household use of the debtor or a
    dependent of the debtor.
    The sweep of Sec. 15-41-200 is limited by the provisions of Sec. 15-41-420
    which states:
    The exemptions contained in this chapter shall not extend to an attachment,
    levy or sale in any mesne or final process to enforce the payment of taxes or a
    valid security agreement; provided, however, that in bankruptcy proceedings,
    provisions of the Bankruptcy Reform Act of 1978 (Public Law 95-598) shall
    control.

    11 U.S.C. Sec. 350(b) provides simply that:


    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.

    These courts relied heavily on the purpose of the bankruptcy code, which is to
    allow the bankrupt a fresh start. They also noted that Congress put no time
    limit on lien avoidance actions and inferred that Congress thus intended that

    they be available even post-discharge. See, e.g., Matter of Montney, 17 B.R.


    353 (Bkrtcy.E.D.Mich., S.D.1982); In re Newton, 15 B.R. 640
    (Bkrtcy.W.D.N.Y.1981)
    4

    In prohibiting post-discharge filing, these courts cited the need for finality in
    bankruptcy proceedings and the creditors' need to know pre-discharge whether
    to seek reaffirmation agreements, which are impermissible post-discharge. See,
    e.g., In re Porter, 11 B.R. 578 (Bkrtcy.W.D.Okl.1981); In re Krahn, 10 B.R. 770
    (Bkrtcy.E.D.Wis.1981); In re Adkins, 7 B.R. 325 (Bkrtcy.S.D.Cal.1980)

    These courts reasoned that this approach is dictated by the bankruptcy courts'
    equitable nature. See, e.g., Towns v. Postal Finance Co., 16 B.R. 949
    (Bkrtcy.N.D.Iowa 1982); See also Matter of Swanson, 13 B.R. 851
    (Bkrtcy.D.Idaho 1981)

    The provisions of Secs. 15-41-200 and 15-41-420 are relatively new and have
    not been authoritatively interpreted by the South Carolina courts. It may well
    be, however, that insofar as the ultimate rights of the debtors are concerned, this
    appeal is an academic exercise. We express no view on the matter, but debtors
    may be entitled to assert the exemption contained in Sec. 15-41-200 as a
    defense to the "claim and delivery" action presently pending in the state court

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