Debtors Can Reopen Bankruptcy Case to Avoid Lien on Farm Equipment

March 15, 2006 | Roger McEowen

 

When a farmer files bankruptcy, farm equipment and implements may be claimed as exempt from creditors under Iowa law. Here, the debtors filed for Chapter 7 bankruptcy and claimed only a tractor and four-row planter as exempt even though they had numerous other items of farm equipment and implements. Their lawyer had mistakenly believed that they had quit farming, but when he realized that wasn’t correct he amended a schedule to claim all of the debtors’ farm equipment and implements as exempt and motioned to avoid liens against all of the equipment. The lienholders were served with the motion, but didn’t object. The court ruled that the motion to avoid the lien was defective and closed the case. Over a year later, the debtors’ moved to reopen the case so that they could refile their motion to avoid the liens. This time a creditor objected to reopening the case. The court allowed the case to be reopened, noting that the Bankruptcy Code allows a case to be reopened for cause and a lien avoidance motion to be granted so long as creditors will not be prejudiced. Here, the court reasoned that the creditor would not be prejudiced because the creditor had not taken action to recover the farm equipment through a replevin action, and did not attempt to foreclose its lien. As such, the 13-month passage of time between closing of the case and the debtors’ filing to reopen did not prejudice the creditor.  Thus, the debtors were able to avoid the lien in all of the farm equipment and implements.In re Vaske, 339 B.R. 489 (Bankr. N.D. Iowa 2006).