RECENT DEVELOPMENTS IN DISCHARGE AND DISCHARGEABILITY LITIGATION

 

 

I. COMMENCEMENT, TIMING AND PROCEDURE

A. Commencement

1. Adversary proceeding governed by Part VIII of the Bankruptcy Rules. Bankr. R. 7001
2. Commenced by filing a complaint. Bankr. R. 7003

B. Timing and extensions of time

1. Section 523(a)(2), (4) or (6) complaint must be filed no later than 60 days after the first date set for the meeting of creditors. 11 U.S.C. § 523(c); FED. R. BANKR. P. 4007(c)
2. No specific limitation on other dischargeability complaints. Case can be reopened without payment of additional filing fee. Bankr. R. 4007(b)
3. Complaint objecting to discharge in a Chapter 7 case must be filed no later than 60 days after the first date set for the meeting of creditors. Bankr. R. 4004(a)
4. Complaint objecting to discharge in a Chapter 11 case must be filed no later than the first date set for the hearing on confirmation. Bankr. R. 4004(a)
5. Sixty days from meeting of creditors at which debtor was present, 60 days from date first set, or 60 days from date of continued meeting?
6. Cause for extension of time
7. Party in interest must seek extension of time before original deadline expires
8. Deadline affected by notice or actual knowledge?
9. Deadline affected by debtor's misconduct
10. Effects of clerk's office notice and administrative mistakes
11. Conversion from Chapter 11 to Chapter 7 commences new period
12. Can timeliness of complaint be waived?
13. Effect of conversion to Chapter 13

C. Statutes of limitations

Frazier v. Schafer (In re Schafer), 407 B.R. 443 (B.A.P. 10th Cir. 2009) (Table) (Cornish, McFeeley, Michael) (Default judgment based on breach of contract supports § 523(a)(2)(A) complaint alleging fraud notwithstanding that statute of limitations has expired with respect to any fraud action against debtor. Citing Resolution Trust Corp. v. McKendry (In re McKendry), 40 F.3d 331 (10th Cir. 1994), "'We . . . find two distinct issues in a nondischargeability proceeding. The first, the establishment of the debt itself, is governed by the state statute of limitations‹if suit is not brought within the time period allotted under state law, the debt cannot be established. However, the question of the dischargeability of the debt under the Bankruptcy Code is a distinct issue governed solely by the limitations period established by bankruptcy law. . . . The only applicable limitations period is the sixty day period provided by § 523(c).' . . . If a state court can determine liability on some basis other than fraud, such as failure to make payments on a promissory note, then there is rarely, if ever, a reason for the state court to delve into issues of fraud. Several courts have held that a party is not required to plead and prove fraud in a state law action in order to contest the dischargeability of a particular debt under § 523. The fact that Frazier may recover from Schafer in state court on the basis

 

©2010 Keith M. Lundin