The opinion of the court was delivered by: Spatt, District Judge
MEMORANDUM OF DECISION AND ORDER
This is an appeal by Patricia Cash (the "Debtor") from a decision of the United States Bankruptcy Court for the Eastern District of New York (Rosenthal, J.) denying her motion to amend her bankruptcy schedules and matrix of creditors to add four unscheduled debts and for discharge of those debts.
The Debtor filed her voluntary bankruptcy petition pursuant to Chapter 7 of the UnitedStates Bankruptcy Code on August 13, 2004. Included in the Debtor's schedule of creditors were: (1) one secured debt owing to Oceanfirst Bank having a mortgage lien on real property known as 29 Driving Park Avenue, Lynbrook, New York 11563 (the "Property") in the amount of $91,201.16; (2) no creditors possessing an unsecured, priority claim; and (3) twenty-six creditors possessing unsecured, non-priority claims in the total sum of $53,708.99. October 11, 2005 was the bar date that the Clerk of the Bankruptcy Court set as the deadline for creditors to file proofs of claim against the bankruptcy estate of Patricia Cash. The only unsecured creditors to timely file proofs of claim against the bankruptcy estate were the New York State Department of Taxation and Finance, which filed a claim in the amount of $156.45, and NCS Corp. (Citifinancial f/k/a Commercial Credit), which filed a general unsecured claim in the amount of $1,418.10. Oceanfirst Bank, as a secured creditor, did not participate in the distribution from the estate.
Not included in the Debtor's schedule of creditors were four debts evidenced by judgments issued by non-bankruptcy judicial forums prior to the commencement of the bankruptcy case. The four creditors holding these debts were: (1) European American Bank, N.A., ("EAB"), which obtained a judgment against the Debtor in the Amount of $13,621.87 from the Third District Court of Nassau County on October 14, 1999; (2) Chase Manhattan Bank, U.S.A., N.A. ("Chase"), which obtained a judgment against the Debtor in the sum of $22,004.90 from the Supreme Court of the State of New York, County of Nassau on June 26, 2000; (3) Universal Bank, N.A., ("Universal"), which obtained a judgment against the Debtor in the sum of $5,762.42 from the First District Court of Nassau County on January 22, 2001; and (4) Erin Services Co., L.L.C. ("Erin"), which obtained a judgment against the Debtor in the sum of $38,475.63 from the Supreme Court of the State of New York, County of Nassau on April 5, 2004.
All of these judgments were duly recorded and perfected in the Nassau County Clerk's Office. The Debtor states that these debts were not included on her schedule of creditors due to a miscommunication between the Debtor and her original bankruptcy counsel at the time of the preparation of her bankruptcy case. Notably, the Debtor has not offered, either before this Court or before the bankruptcy court, any substantiation by her previous attorney of this alleged inadvertent error.
Ordinarily, unscheduled creditors do not receive formal notice of the bankruptcy petition from the Clerk of the Bankruptcy Court. However, the Debtor claims that both Chase and Erin were notified of the commencement of her bankruptcy case because although the debts owing them were not included in the Debtor's schedule, Chase and Erin were included on the Debtor's matrix of creditors. Upon the filing of a Chapter 7 case, the Clerk of the Bankruptcy Court has a practice of submitting a printed notification of the bankruptcy case to all parties listed in the matrix of creditors as prepared by the Debtor. Such mailing is provided for under Fed. R. Bankr. P. 2002(1).
On January 11, 2005, the Chapter 7 Trustee, Andrew M. Thaler, Esq., commenced an adversary proceeding against the Debtor and her husband, Ray Cash, to recover the Debtor's interest in the Property alienated through a series of allegedly fraudulent transfers of the Property between March of 1986 and June of 2000. Based on the limited claims filed by the Debtor's creditors, the parties entered into a stipulation of settlement in the amount of $7500, which was "So Ordered" by the Bankruptcy Court on January 23, 2006. The settlement amount allowed for full payment to the two unsecured creditors that had filed proofs of claim and for the administrative and professional fees associated with the petition. On October 13, 2006, the Trustee filed his Final Report reflecting the agreed upon settlement. A final hearing for approval of the Trustee's Report was scheduled for January 10, 2007.
On December 26, 2006, before the final hearing took place, the Debtor filed a motion to amend her schedules to add the four unscheduled debts. The Debtor requested that the court discharge the debts owed to Chase and Erin as they were supposedly notified of the bankruptcy petition. In addition, the Debtor moved the court to allow EAB and Universal, the two creditors not included in the matrix of creditors, time to file proofs of claim against the bankruptcy estate and deem those proofs of claim timely in order to share in the distribution of the estate. Also, the Debtor's motion sought to give EAB and Universal thirty days to file objections to the dischargeability of the debts they held. If EAB and Universal failed to file proofs of claim or objections to dischargeability, the Debtor further sought discharge of the debts owed to them as well. The Debtor contends that the four unscheduled creditors were duly served with her motion to amend.
The hearing on the Debtor's motion was adjourned several times and the Bankruptcy Court issued an order approving the Trustee's final report on February 16, 2007, before the Debtor's motion was heard. The Trustee sent notice to the Bankruptcy Court and the United States Trustee that distribution under the settlement would be delayed because the Debtor's motion remained pending. Further, the Trustee opposed the Debtor's motion, arguing that if the judgment liens of EAB and Universal were eradicated and they were relegated to general unsecured creditors, the claims against the bankruptcy estate would increase to nearly $21,000 from the mere $1,574.55 in timely filed claims that existed when the Trustee negotiated the settlement on January 23, 2006. The Trustee argued that this would subvert the terms of the settlement and prejudice the existing creditors because with only $7,500 available in the estate, the creditors would receive far less than the 100% distribution that the Trustee had negotiated for. The Trustee did not show similar concern with respect to the debts held by Chase and Erin, still, the Trustee opposed the Debtor's motion to amend in its entirety.
B. The Bankruptcy Court's Decision
On March 20, 2007, a hearing was held before the Honorable Joel B. Rosenthal of the United States Bankruptcy Court on the Debtor's motion to amend. The Debtor argued that the motion should be granted because none of the four unscheduled creditors had objected to the motion despite the great length of time between service of the motion and the hearing. The Debtor argued that the estate should be treated as a no-asset case as to the four unscheduled creditors because the time for them to timely file proofs of claim or objections to distribution had expired and they would not be entitled to any distributions from the estate. In opposition, the Trustee argued that despite the Debtor's contention, the requested relief in her motion sought to allow Universal and EAB to "share in the distribution of the assets of the estate," thereby interfering with the structure of the settlement. (Tr. at 9:13--18)*fn1.
Judge Rosenthal denied the Debtor's motion in its entirety, including as to Chase and Erin, who ostensibly had notice of Cash's bankruptcy petition because of their inclusion in the matrix. The court found that the Trustee had agreed to the settlement in reliance upon the veracity of the Debtor's schedules. In addition, Judge Rosenthal stated: "to now let [the unscheduled creditors] come in and attempt to file proofs of claim and dilute ...