In the recent case of In re Harms, Case No. 18-22406, the United States Bankruptcy Court for the Western District of Pennsylvania was faced with the question of whether debtors can litigate a contested matter, then amend their bankruptcy schedules after an adverse ruling based on the “liberal” right to amend under the Federal Rules of Bankruptcy Procedure.
In this case, the contested matter at issue involved whether the debtors had the financial ability to pay something to their unsecured creditors in a Chapter 13 case. One of the factors considered in this scenario is whether the debtors had sufficient monthly income to make payments into a plan, after accounting for monthly expenses, based on the bankruptcy schedules they filed with the Court subject to the penalties of perjury. The schedules listed, among other things, the debtors’ assets, debts, income, and expenses (essentially, a more detailed version of a personal financial statement). Schedules are a key source of information for creditors and other stakeholders in the case and, in some cases, the only source of information.
In this case, the debtors’ original schedules showed they had the means to make monthly payments pursuant to a Chapter 13 plan. After the Court ruled that they did have the ability to pay something to their unsecured creditors, the debtors sought reconsideration, arguing that they inadvertently failed to include certain expenses in their schedules through “excusable neglect.” After the missing expenses were factored in, the debtors lacked the income to make plan payments.
Thus, the case turned on whether the debtors should be bound by their original bankruptcy schedules or permitted to use a “mulligan” to fix their mistakes. The Court ruled that, under the circumstances, the debtors were stuck with their original schedules, noting “[i]t should go without saying that debtors cannot simply avoid adverse rulings based on their schedules by changing that information in a subsequent amendment.”