The Bankruptcy Code provides numerous protections for debtors in order to facilitate the goal of enabling a fresh start. Section 305(b) of the Code even permits a case to be reopened for various reasons, including “to accord relief to the debtor.” Practitioners often see this section invoked when necessary to allow the bankruptcy court to interpret an order entered in the case or to allow the Debtor to seek to avoid a judicial lien which should have been addressed before the case was closed. The decision to re-open the case is committed to the discretion of the bankruptcy court. The courts generally take a permissive approach, unless there would be prejudice to another party.
In a recent case, the Third Circuit Court of Appeals was faced with a situation where the liberal standard for reopening a case proved insufficient to help the debtor. In In re Scheib, the debtor sought to reopen her case seeking additional relief, but the Court of Appeals for the Third Circuit, affirming both the bankruptcy and district courts, held that the request was too late and refused to reopen the case.
The Debtor originally filed her bankruptcy case in 1997 and she received a discharge in 1998, after which her bankruptcy case was closed. The request to reopen the bankruptcy was filed in 2013, apparently after years of state court foreclosure litigation transpired. The Court of Appeals concluded that the motion to reopen was untimely filed, observing that Federal Rule of Bankruptcy Procedure 9024 incorporates, with certain exceptions, Federal Rule of Civil Procedure 60, which sets forth the grounds for relief from a final judgment and the time requirements for filing a motion. Under the Rule’s standards, the Court concluded there was no question that Scheib’s motion to reopen, filed more than fourteen years after her bankruptcy case was closed, was not filed within a reasonable time as required by Rule 60(c).
The Court also questioned the underlying merits asserted as grounds for the motion, noting that the bankruptcy court is not the proper forum in which to adjudicate a disputed foreclosure action, which is generally the province of the state courts.
The Scheib decision was designated by the Court as non-precedential, meaning that it is binding on the parties, but does not constitute binding precedent in other cases. Nevertheless, the decision is instructive and indicates that there are limits despite the liberal standard for reopening bankruptcy cases. Simply put, 14 years is too long.
