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Why Would The Bankruptcy Judge Vacate A Judgment?

Posted By admin || 1-Jun-2011

Why Would The Bankruptcy Judge Vacate A Judgment?

Judgement Vacated in Bankruptcy

During the bankruptcy process a trustee may decide to file an adversary proceeding against a creditor.  The creditor is required to respond to the adversary proceeding within a certain amount of time or face a default judgment in favor of the bankruptcy estate. In a recent bankruptcy case, the creditor was hit with a default judgment which they unsuccessfully attempted to overturn.

The creditor argued that they had not received notice of the adversary proceeding because court documents were supposed to go to another address which was set up to receive court documents. However, the bankruptcy court is allowed to mail court documents to the address and person listed as the agent for the company.

American Home filed a motion to vacate the default judgment pursuant to Bankruptcy Rule 9024. That rule incorporates Federal Rule of Civil Procedure 60(b) which provides as follows:

(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
  • mistake, inadvertence, surprise, or excusable neglect;
  • newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);
  • fraud (whether previously called intrinsic or extrinsic), or misconduct by an opposing party;
  • the judgment is void;
  • the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is not longer equitable; or
  • any other reason that justifies relief.
The bankruptcy court found that the creditor failed to prove that they had not received notice of the bankruptcy filing even though they were expecting it at another address. The fact that the bankruptcy court sent it to the address of the corporation's agent was notice enough and the court decided to let the judgment stand.

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