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In re Gershenbaum

decided: April 26, 1979.

IN THE MATTER OF: GERSHENBAUM, ARTHUR, BANKRUPT, ARTHUR GERSHENBAUM, APPELLANT


APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY -- NEWARK (D.C. Bankruptcy No. B 76-2604)

Before Aldisert, Garth and Higginbotham, Circuit Judges.

Author: Garth

Opinion OF THE COURT

The issue presented on this appeal is whether a bankruptcy court, prior to the time that the bankruptcy case has been closed, may deny an application made by the bankrupt to amend his petition. We hold that, in the circumstances of this case, Bankruptcy Rule 110*fn1 Required the bankruptcy court to allow an amendment listing an additional creditor. We therefore reverse the district court, which refused to permit the amendment.

I

The plaintiff, Arthur Gershenbaum, filed a voluntary petition in bankruptcy on August 23, 1976. In his petition, Gershenbaum stated that he had assets which were worth approximately $1,000 and debts which exceeded $509,000. He was adjudged bankrupt on September 14, 1976. A Trustee was appointed, and the first creditors' meeting was then held on January 4, 1977, at which time an order discharging Gershenbaum as a bankrupt was entered by the court.

On March 6, 1978, Sol Brown brought an action in the Superior Court of New Jersey, claiming that $10,000 was due and owing to him under two promissory notes made by Gershenbaum in 1964 and a loan made to Gershenbaum in 1969. In his answer, Gershenbaum raised both the statute of limitations and his discharge in bankruptcy as affirmative defenses. He then moved for summary judgment on the ground that Brown's claim was barred by the statute of limitations. His motion was denied.

Gershenbaum next made an application to the bankruptcy court to amend his original petition in bankruptcy. Gershenbaum admitted that Brown had not been listed as a creditor in the petition, and he asked that the petition now be amended to reflect his debts to Brown.

The bankruptcy court denied Gershenbaum's application by its order of June 22, 1978, denying the application. Gershenbaum appealed to the district court, which dismissed his appeal in an order filed on September 22, 1978.*fn2

II

The district court concluded that the bankruptcy court has discretion to grant or to deny leave to amend a petition in bankruptcy. Finding that Gershenbaum had not set forth facts revealing an abuse of discretion by the bankruptcy court, it affirmed. If the Bankruptcy Rules placed amendments within the discretion of the bankruptcy court, we might be persuaded to affirm the district court's order. But Rule 110 provides that a petition may be amended by the bankrupt "as a matter of course at any time before the case is closed," and therefore we must reverse.

A

Prior to 1973, amendments to bankruptcy petitions were governed by General Order 11.*fn3 That rule provided that "the court May allow amendments" (emphasis added), and it further required the bankrupt to explain the cause of the error in the petition as it was originally filed. It thus gave the bankruptcy court substantial discretion to deny an amendment for which good cause had not been shown. Some courts held that new creditors ordinarily could not be added to the petition by amendment after the first creditors' meeting had been held. See 1A Collier on Bankruptcy P 7.12 at 996.4-996.5.

This view was not adopted in Bankruptcy Rule 110, which in 1973 superseded General Order 11 and the interpretive case law.*fn4 The first ...


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