Ferguson obtained a judgment in 2008 against the Robert Dean, who, with his then wife, Lisa Dean, subsequently filed a Chapter 7 bankruptcy in 2010. Believing that the real property was held as Tenants by the Entireties, the judgment lien was not avoided and the Deans received a discharge. Subsequently, the Deans divorced with Mr. Dean transferring his interest in the real property to Lisa and her new husband. When Lisa sought to refinance the real property in 2015, the judgment lien was discovered. The Debtors then sought to re-open the bankruptcy and to avoid the lien, with Ferguson objecting.
While finding that there was no time limitation for avoiding a lien or reopening a case under 11 U.S.C. §§ 350 (b) or 522(f) nor Fed. R. Bankr. P. 4003(d), 5010 or 9024, the bankruptcy court held that “such motions are subject to equitable limitations and may be denied for reasons such as prejudice, laches, reliance, estoppel, or fraud.” Ferguson asserted the defense of laches which requires:
(1) lack of diligence by the party against whom the defense is asserted; and
(2) prejudice to the party asserting the defense.” Costello v. U.S., 365 U.S. 265, 283 (1961)
The mere passage of time does not constitute prejudice unless combined with other factors, particularly “if parties have incurred costs in executing on a judgment lien in state court in reliance upon a debtor’s previous inaction in bankruptcy.” As Ferguson had taken no such actions, avoidance was not barred by laches.
Without citation, this is largely the same analysis as in the recent E.D.N.C. opinion of In re Abuharb, except there the judgment creditor had expended time and incurred costs in multiple multiple actions to avoid the lien and was allowed reimbursement for such expenses.
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