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Closing and Reopening Bankruptcy Cases
Generally, after a bankruptcy estate has been “fully administered”—e.g., the debtor’s chapter 11 plan has been confirmed, all bankruptcy claims have been resolved, and the plan is “substantially consummated”—the court, pursuant to section 350(a) of the Bankruptcy Code, is required to close the case by issuing a “final decree” in accordance with Rule 3022 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). Once a case is closed, the bankruptcy court’s jurisdiction over the debtor and its estate normally terminates.
However, section 350(b) of the Bankruptcy Code and Bankruptcy Rule 5010 authorize the court, on motion of the debtor or another party in interest, to reopen a closed bankruptcy case “to administer assets, to accord relief to the debtor, or for other cause.” Pursuant to Bankruptcy Rule 9024(1), a motion to reopen a case is not subject to the one-year time limit that generally applies to motions for relief from an order of the court. A decision on a motion to reopen is committed to the sound discretion of the bankruptcy court.
Common reasons that have warranted reopening a closed case under section 350(b) include: (i) the discovery of unadministered assets which were unknown at the time of closure; (ii) amending schedules to add a previously omitted debt or creditor; (iii) avoiding a lien impairing exempt property; (iv) granting the debtor a discharge if the case was closed before a discharge was granted; and (v) enforcing the discharge injunction under section 524(a) of the Bankruptcy Code. See generally Collier on Bankruptcy ¶ 350.03 (16th ed. 2016).
Neither section 350(b) nor any other provision of the Bankruptcy Code specifies what constitutes “other cause” for reopening a closed case. In the absence of statutory guidance, bankruptcy courts have broad discretion in making this determination. For example, courts have granted motions to reopen a case to modify a chapter 11 plan or to interpret a provision in a previously confirmed plan. Id. (citing cases).
Courts are generally reluctant to reopen closed cases. Reopening a case removes the element of certainty and finality that comes with full administration of an estate and entry of a final decree. For this reason, courts consider a number of factors in determining whether reopening a case is justified under the particular circumstances of each case. For example, bankruptcy courts in the Southern District of New York have applied the following six-factor test:
The length of time that the case was closed;
Whether a nonbankruptcy forum has jurisdiction to determine the issue cited for reopening the case;
Whether prior litigation in the bankruptcy court determined that another court would be a more appropriate forum;
Whether any parties would suffer prejudice if the court grants or denies the motion to reopen;
The extent of any benefit to any party by reopening the case; and
Whether it would be futile to reopen the case because the requested relief cannot be granted.
See In re Easley-Brooks, 487 B.R. 400 (Bankr. S.D.N.Y. 2013); In re PlusFunds Grp., Inc., 2015 BL 113361 (Bankr. S.D.N.Y. Apr. 21, 2015). The moving party bears the burden of establishing “other cause” to reopen.
The bankruptcy court in Atari considered a motion to reopen a closed chapter 11 case under section 350(b).
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