Bankruptcy – Post-discharge jurisdiction

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Where an adversary proceeding was dismissed for lack of jurisdiction, the bankruptcy court should have conducted a case-specific inquiry as to whether it had any basis for retaining jurisdiction over the adversary proceeding post-discharge.

Vacated and remanded.

“Over five years after filing an adversary proceeding in the United States Bankruptcy Court for the District of Puerto Rico, debtors and appellants Juan J. Guallini-Indij and Raquel Medina-Rampolla (‘the Guallinis’) continue to diligently pursue their day in court. The Guallinis seek to hold appellee, Banco Popular de Puerto Rico (‘Banco Popular’) accountable for what they say was its predatory collection practices towards them in violation of Puerto Rico law and multiple federal laws. Along their path to our court, the Guallinis have completed their bankruptcy plan with payment in full, have been told twice by the United States District Court for the District of Puerto Rico that it would not withdraw their adversary proceeding from the bankruptcy court, and have had the bankruptcy court close its doors to them for want of subject matter jurisdiction. After a careful review of their claims, we think their appeal has merit, so we vacate and remand for reasons we explain. …

“We first address the Guallinis’ appeal from the bankruptcy court’s dismissal for lack of subject matter jurisdiction. …

“… The Guallinis agree with the bankruptcy court that their adversary proceeding fell into the ‘related to’ bucket of bankruptcy jurisdiction. However, they argue that the completion of their Chapter 13 plan did not ‘automatically deprive the bankruptcy court of its consideration on the merits’ such that the bankruptcy court could have ‘proposed findings and conclusions’ to be further reviewed (de novo) by the district court. … We agree. …

“Because it is undisputed the bankruptcy court had subject matter jurisdiction over the adversary proceeding when the Guallinis filed it, we hold that the court erred as a matter of law in sua sponte dismissing the Guallinis’ adversary proceeding when it assumed that it automatically lost its jurisdiction because of the discharge. Recently, in assessing the jurisdiction of a bankruptcy court post discharge, we (like other courts) specifically declined to adopt a blanket rule that jurisdiction automatically terminates following the dismissal of an underlying bankruptcy petition. … Instead, we concluded that the question of a bankruptcy court’s post-dismissal (or discharge) jurisdiction is ‘a case- and fact-specific inquiry.’ … What the bankruptcy court should have done (but did not) was make a case-specific inquiry as to whether it had any basis for retaining jurisdiction over the adversary proceeding post discharge. … Should the proceeding ultimately return to the bankruptcy court on remand, the court will then be in a position to conduct this inquiry in light of its own views and the parties’ presentations of their arguments.

“As guidance for that analysis, we endorse the approach taken by other circuits that the case-specific inquiry should be gauged by several familiar factors: judicial economy, convenience to the parties, fairness, and comity. …

“The Guallinis also appeal the district court’s denial of their second motion for withdrawal. …

“… When presented with the Guallinis’ second motion for withdrawal, the district court should have considered the present status of proceedings in the bankruptcy court (i.e., that the pre-trial proceedings prolongedly shepherded by the bankruptcy court had yet to conclude). Because it is not clear from the district court’s opinion whether it improperly relied on the status of the proceedings at the time of the first motion without considering that the first motion was denied without prejudice, we vacate its decision and remand for further proceedings consistent with this opinion. …

“For the foregoing reasons, we vacate the decision of the district court and remand with instructions to vacate the decision of the bankruptcy court and to conduct further proceedings consistent with this opinion. Furthermore, we vacate the district court’s denial of the motion for withdrawal of reference, and remand to the district court for further consideration of the motion for withdrawal consistent with this opinion.”

In Re: Guallini-Indij, et al. v. Banco Popular de Puerto Rico (Lawyers Weekly No. 01-042-26) (34 pages) (Thompson, J.) Appealed from the U.S. District Court for the District of Puerto Rico (Docket No. 23-1705) (March 4, 2026).

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