In re Underhill

2013 FED App.004P (6th Cir.) File No.13b0004p.06
The Bankruptcy Appellate Panel for the Sixth Circuit affirmed the decision of the Bankruptcy Court for the Southern District of Ohio reopening the debtors' bankruptcy, and remanded the case to the bankruptcy court to determine the value of the debtor wife's interest in a single member limited liability company which obtained an $80,000 settlement after the debtors received their discharge. The BAP held the court did not abuse its discretion in reopening the debtors' case to administer a potential asset; that settlement proceeds from a claim owned by the LLC could be property of the estate as it arose from prepetition conduct; but remanded the case for the bankruptcy court to allocate the proceeds to creditors of Golf Chic first, with any remainder being the value of the debtor wife's membership interest in the LLC.
Procedural context:
The bankruptcy court granted Huntington National Bank's motion to reopen the debtors' bankruptcy to administer settlement proceeds from a claim brought by a single member LLC owned by debtor wife after the debtors obtained a discharge. The debtors timely appealed the order to reopen the case and administer the asset of the settlement proceeds.
The Underhills filed Chapter 7 bankruptcy in January, 2010. They listed interests in several single member LLC's as assets, with a zero value. One of those LLC's was Golf Chic, LLC, owned by Mrs. Underhill. The Trustee filed a no asset report, the debtors received their discharge and their case was closed on June 15, 2010. Huntington National Bank held a claim of $25,000 secured by the assets of Golf Chic, as well as an unsecured claim against another LLC owned by the Debtors. In October, 2010, Golf Chic filed a state court suit against 3 defendants claiming they acted in a manner intended to drive Golf Chic out of business. The claims settled in February, 2012 for $80,000 split between Mrs. Underhill and counsel for Golf Chic. Huntington National Bank moved to reopen the debtors bankruptcy to administer the undisclosed asset of the claims which Golf Chic owned. The debtors objected and argued that the claim was not property of their estate, and that it had been abandoned when their case was closed. The bankruptcy court granted the motion to reopen and found that Golf Chic's claims (and resulting settlement proceeds) were sufficiently rooted in prepetition conduct to constitute an asset of the debtors' estate, to be administered in the case.
Emerson, Lloyd and McIvor; opinion by McIvor

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