Summary of a Recent
Judicial Development in
Secured Transactions

Creditor Who Had Over One Year to Foreclose Was Not Prejudiced by
Reopening of Case and Motion to Avoid Liens

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Vaske, 339 B.R. 489 (Bankr. N.D. Iowa 2006), the United States Bankruptcy Court for the Northern District of Iowa held that a debtor's motion to reopen his case and to avoid a lien did not prejudice his creditor, because the creditor had over a year in which to take action to enforce the liens but failed to do so.

Background

In their Chapter 7 schedules, the Debtors listed various farm equipment with a combined value of $19,100, and they later amended their schedules to claim all their farm equipment and implements as exempt under Iowa Code § 627.6(11). Id. at 490. They also filed a motion to avoid the fixing of liens against their farm equipment by Security State Bank. Id. No party objected to the amended claim of exemption of the equipment or to the avoidance of the lien, and the time for objecting expired and the court granted their discharge. Id. at 490-91. Notwithstanding the Bank's failure to object, the court held that the motion for avoidance failed to state a claim on which relief could be granted and allowed the Debtors time to amend. Id. at 491. The Debtors failed to do so, and the motion was dismissed without prejudice and their case was closed. Id. Debtors reopened their Chapter 7 case in December 2005 and refiled a motion to avoid the Bank's lien. Id. The Bank objected to the reopening of the case and to the motion to avoid its lien. Id.

Arguments

The Bank argued that it was prejudiced by the Debtors' delay in filing the motion and that the remedy sought by the Debtors was barred by the doctrine of laches. Id.

The Debtors' attorney explained that he had not filed an amended motion before the case closed because he had mistaken the Debtors' situation with one of his other clients, so he thought they had ceased their farming operation, and he had reopened their case as soon as he became aware of his mistake. Id.

Analysis and Holdings

The court overruled the Bank's objection to reopening the case, and held that the Bank had not been prejudiced by the delay because it had more than a year in which to foreclose before the case was reopened and yet it had not taken action. Id. at 492. The court stated the longstanding rule that "a debtor may file a lien avoidance motion after debtor has received a discharge if the debtor's failure to act more promptly was with good cause and the creditor was not prejudiced by the delay." Id. Therefore, the court denied the Bank's objection to the Debtors' motion to avoid of the lien. Id.

The case was decided on March 20, 2006.