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Debtor’s Adversary Proceeding in Chapter 7 Bankruptcy Dismissed on Procedural Grounds; Appeal Dismissed as Untimely

jppi from morguefile.comA personal bankruptcy can be very complicated, requiring substantial disclosures and accountings from both debtors and creditors. Like other court systems, the federal bankruptcy courts have developed procedural rules that, at least ideally, help the system run more smoothly. Among these rules are some very strict deadlines for filing documents with the court, and restrictions on the number of times a person may bring the same or similar claims against a defendant. A California bankruptcy court recently dismissed an adversary proceeding brought by a Chapter 7 debtor against some of her creditors, finding that her claims were barred by prior lawsuits. A district court then dismissed her appeal, finding that she did not meet the deadline established by the Federal Rules of Bankruptcy Procedure.

The debtor in In re Camacho filed a voluntary petition for bankruptcy under Chapter 7 in August 2012. She filed an adversary proceeding against three creditors in October 2012, asserting nine causes of action including fraud, breach of fiduciary duty, conspiracy to defraud, and negligence. All three creditors filed motions to dismiss the adversary proceeding. They noted that the debtor’s spouse had previously filed two lawsuits on behalf of the marital estate that asserted the same causes of action, and had voluntarily dismissed both suits. This, they argued, barred the debtor’s adversary proceeding.

The bankruptcy court granted the creditors’ motion and dismissed the adversary proceeding. Federal Rule of Civil Procedure 41(a)(1)(B) states that if a plaintiff voluntarily dismisses a lawsuit, and then voluntarily dismisses another lawsuit that asserts the same claim, the second dismissal “operates as an adjudication on the merits.” Under a legal doctrine known as res judicata, a person cannot file a lawsuit based on a claim that has already been adjudicated by a court of law. The bankruptcy court in Camacho therefore ruled that the adversary proceeding was barred.

The bankruptcy court entered its order dismissing the adversary proceeding on February 27, 2013. It closed the adversary proceeding and issued a written opinion on March 18. The debtor filed a notice of appeal to the district court on March 28, ten days after the date of the opinion, but twenty-nine days after the date of the order. The creditors moved the district court to dismiss the appeal under Federal Rule of Bankruptcy Procedure 8002(a), which sets the deadline for an appeal “within 14 days of the date of the entry of the…order.” The debtor argued that the fourteen-day clock began on March 18, when the bankruptcy court closed the case and issued its opinion. The district court rejected the debtor’s argument, finding that case law has established that a court’s “final appealable order” starts the appeal period, whether or not the court subsequently issues a more detailed opinion. The clock began to run on February 27, and the debtor missed the deadline.

Personal bankruptcy under Chapter 7 or Chapter 13 allows people who are having serious financial troubles to pay their bills and arrange their finances. The bankruptcy process allows people to liquidate assets in order to make payments, to develop a more manageable payment schedule, and, at the close of the case, to discharge the remainder of some debts. Bankruptcy attorney Devin Sawdayi has handled personal bankruptcy cases for clients in the Los Angeles area in since 1997, providing legal services with dignity and respect. To schedule a free and confidential consultation, please contact us today online or at (310) 475-9399.

More Blog Posts:

Chapter 7 Bankruptcy Case Delayed Because Debtor Did Not Personally Sign Petition, Los Angeles Bankruptcy Lawyer Blawg, October 25, 2013

Late Challenge By Creditor Allowed in Chapter 7 Case Because Debtor Did Not Give Adequate Notice, Los Angeles Bankruptcy Lawyer Blawg, August 30, 2013

Filing for Bankruptcy After a Prior Discharge Under Chapters 7 and 13, Los Angeles Bankruptcy Lawyer Blawg, August 9, 2013

Photo credit: jppi from morguefile.com.