MDNC BK: In re Beverly- Reopening of a Case to Avoid Judgment Lien

Summary:

Michael Vincent Beverley filed for Chapter 7 bankruptcy on May 24, 2019,   disclosing In his petition his ownership of  real property located at 6680 Ridge Bluff Drive, Rural Hall, North Carolina, valued at $208,000, encumbered by a deed of trust and several judgment liens, including to BMO Harris Bank..  Mr.  Beverley  received a discharge on August 29, 2019, and the case was closed on September 9, 2019, but without filing motions to avoid judicial liens.

Subsequently,  BMO Harris Bank assigned the judgment to Guaranty Solutions Recovery Fund 1, LLC in July 2023, which pursued collection on the judgment against Mr. Beverley's  homestead,  including sending Mr.  Beverley a Notice of Right to Have Exemptions Designated.

In response,  Mr. Beverley sought to have his original attorney  reopen the case to avoid this judgment lien,  but as that lawyer was retiring,  Mr.  Beverley hobtain new representation and filed that motion on on January 4, 2024.    Guaranty Solutions Recovery Fund 1  objected, citing unfair prejudice due to the time elapsed and expenses incurred.

First the bankruptcy court held that reopening a case under 11 U.S.C. § 350(b) is discretionary and requires cause, such as avoiding judicial liens, which can provide relief to the Debtor. Then that the late avoidance of judicial liens "incorporates an equitable defense akin to laches" which  would prohibit the avoidance  if the creditor can show both a:

1. Lack of diligence by the party against whom the defense is asserted; and 
2. Prejudice to the party asserting the defense.” 

Miller v. Hooks, 749 Fed. Appx. 154, 161 (4th Cir. 2018).

Here the bankruptcy court found that  the delay substantial but not insurmountable, as the prejudice caused was monetary and curable by requiring Mr.  Beverley to  reimburse  Guaranty Solutions Recovery Fund 1  for its reasonable attorney’s fees and costs incurred due to the delay.  Further,  if Guaranty Solutions Recovery Fund 1 desired a retrospective appraisal  of the property to determine the value of the real property as of 2019,  when the case was filed,  Mr. Beverley would bear those costs as well.

Commentary:

This  decision does strike a fair balance in allowing debtors to avoid judgment liens,  which often go unnoticed especially as the three major credit reporting agencies no long list those.  (Although debtors attorneys should be getting judgment searches elsewhere- whether WestLaw,  Castle Branch or some other source). The balance is that the debtor is liable for any reasonable costs incurred by the judgment creditor in the time since discharge,  including  for a retroactive appraisal.