In re: Kleynerman
By referring to the Rooker-Feldman doctrine, the appellant might have won an appeal where the bankruptcy court effectively set aside an erroneous decision by a state court regarding discharge.
- Rochelle Quick Take
View Rochelle Summary- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- No. 22-2947 (7th Circuit, Feb 27,2024) Published
- Tag(s):
- Ruling:
- The U.S. Court of Appeals for the Seventh Circuit held a bankruptcy court did not err in granting a chapter 7 debtor's motion to reopen a case to avoid a judicial lien on the debtor's LLC membership interest. The LLC's value may have increased while debtor was in bankruptcy but exempt assets are valued as of the petition date. No party objected to the property's scheduled value or the exemption claim prior to discharge, and the trustee abandoned the asset. The bankruptcy court did not err in refusing to revisit the exemption's validity post-discharge under Fed. R. Bankr. P. 4003(d).
- Procedural context:
- Creditor appealed two issues to the Seventh Circuit: (a) whether the bankruptcy court erred in reopening Debtor's case under 11 U.S.C. §350(b) so that Debtor could move to avoid a lien impairing a claimed exemption in an LLC membership interest under 11 U.S.C. § 522(f)(1)(A), and (b) whether the bankruptcy court erred in refusing to reassess Debtor's exemption claim under Fed. R. Bankr. P. 4003(d) upon reopening the case after (1) Debtor scheduled the value of the membership interest at $0 when he filed his petition, (2) Debtor claimed an exemption in his membership interest, (3) no party objected to the scheduled value of the asset or objected to the exemption claim within 30 days of the meeting of creditors, (4) the Chapter 7 Trustee abandoned the estate's interest in the LLC membership interest, and (5) Debtor received a discharge.
- Facts:
- Debtor Gregory Kleynerman had a business partnership with Creditor Scott Smith that ended badly, leading to years of litigation. Creditor obtained a Wisconsin state court judgment against Debtor for $499,000. A charging order was entered, creating a judicial lien on Kleynerman's membership interest in an LLC. Debtor then filed a chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Eastern District of Wisconsin. His schedules valued his interest in the LLC at $0. He claimed an exemption in this property interest under Wisconsin law. Creditor filed an adversary proceeding, contending the state court judgment should be excepted from Debtor's discharge under 11 U.S.C. § 523(a)(4). The bankruptcy court found the debt was dischargeable. Creditor did not object to Debtor's claimed exemption in the membership interest or to the entry of Debtor's discharge. The Chapter 7 Trustee abandoned the estate's interest in the property. Post-discharge, Debtor asked the state court to deem the judgment discharged, but Creditor objected, contending the exemption applied only to debts secured by real property. The state court agreed with Creditor. Debtor returned to bankruptcy court, moved to reopen his chapter 7 case, and asked the bankruptcy court to avoid the lien on his membership interest in the LLC under 11 U.S.C. § 522(f)(1)(A). The bankruptcy court granted the requested relief. The U.S. District Court for the Eastern District of Wisconsin affirmed. Creditor timely appealed to the Seventh Circuit.
- Judge(s):
- EASTERBROOK, WOOD, and KIRSCH