Memorandum of Decision Re: Recovery of Chapter 13 Payments

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re QUENTIN and KAREN SMITH,                                       No. 1-82-00285      Debtor(s). ______________________________________/ QUENTIN and KAREN SMITH,      Plaintiff(s),    v.                                                                                      A.P. No. 97-1255 FRANCHISE TAX BOARD,      Defendant(s). _______________________________________/
Memorandum of Decision
     Debtors Quentin and Karen Smith filed consolidated Chapter 13 petitions almost eighteen years ago. Since they had not filed state income tax returns for several years prior to the filing, the California Franchise Tax Board filed claims based on estimate assessments. During the case, the FTB received $13,770.60 from the Chapter 13 trustee on account of its claims. The Smiths were discharged and the case was closed in 1991.      After the Chapter 13 case was closed, the Smiths finally filed their state income tax returns. They showed that no tax had in fact been owed. In this adversary proceeding, filed some 15 years after the Chapter 13 was filed and almost 7 years after it was closed, the Smiths ask the court to disallow the FTB claim and order the return to them of the funds it received from the trustee. For the reasons stated below, summary judgment will be granted in favor of the FTB.      This dispute is governed by section 502(j) of the Bankruptcy Code, which provides, in pertinent part: (j) A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case. . . . This subsection does not alter or modify the trustee's right to recover from a creditor any excess payment or transfer made to such creditor.      The court first notes that reconsideration of claims pursuant to § 502(j) must be made before the case is closed. In re Resources Reclamation Corp. of America, 34 B.R. 771, 773 (9th Cir.BAP 1983).      Even if this case somehow had not been closed, it would still be too late under the equities of the case to reconsider the FTB claims. Two important factors in considering requests for reconsideration of claims are the length of the delay and its impact on efficient court administration and whether the delay was beyond the reasonable control of the person whose duty it was to perform. In re Resources Reclamation Corp. of America, 34 B.R. at 774. The Smiths themselves caused this situation by failing to file their state tax returns. They had the power to do so for eight years while the case was pending. There is no equity in asking the court to revisit an ancient case for their benefit under these circumstances.      Even if the Smiths were not time-barred, they have no standing to bring this action. Section 502(j) notes the trustee's right to recover excess payments. There is no basis in the law for discharged debtors to seek recovery of funds paid to their creditors by a bankruptcy trustee. The Smiths' argument that they are somehow bringing this action on behalf of their creditors, notwithstanding their discharge, is without merit to the point of sanction.      For the foregoing reasons, the motion of the FTB for summary judgment will be granted and the Smiths' motion for reconsideration of the court's tentative ruling will be denied. The Smiths will take nothing by their complaint and this adversary proceeding will be dismissed with prejudice. The FTB shall recover its costs of suit from the Smiths.      Counsel for the FTB shall submit an appropriate form of order granting its summary judgment motion and an appropriate form of judgment.
Dated: November 8, 1999                                                                            ____________________________                                                                                                                      Alan Jaroslovsky                                                                                                                      United States Bankruptcy