Extending Time for Filing Objections to Discharge in Bankruptcy

The legal brief below is a real brief that I submitted to the bankruptcy court in the Atlanta division of the Northern District of Georgia court in response to a creditor's motion to extend the deadline to determine dischargeability for an additional 2 months in my client's Chapter 7 bankruptcy case.  On the date of the hearing on this matter, which occurred the day before the deadline to file the objection (or, the adversary proceeding), the judge gave the creditor 6 additional days to file the objection.  The creditor failed to file an objection in a timely fashion and sought an additional extension, which the court denied.  Interestingly enough, after my client received a successful discharge of her case, this particular creditor contacted my client in violation of the court's discharge order, a matter that we will be litigating in bankruptcy court.

DEBTOR’S RESPONSE IN OPPOSITION TO CREDITOR'S MOTION TO EXTEND TIME TO OBJECT TO DISCHARGEABILITY

COMES NOW, DEBTOR, and, by and through her undersigned counsel, files this her Response in Opposition to CREDITOR’S (hereinafter referred to as “Movant”) Motion to Extend Time to Object to Dischargeability and shows this Honorable Court the following:

Movant’s Motion, although timely filed pursuant to Fed.R.Bankr.P. 4004(b) and 9006(b)(1), should be denied because Movant fails to show that its request is “for cause” as required to obtain an extension.  Specifically, Movant failed to exercise any due diligence in engaging in discovery regarding the dischargeability of Debtor’s debts within the time prescribed under the Bankruptcy Code.  Movant’s last-minute attempt to obtain an extension of a deadline of which Movant has been aware for 78 days cannot be granted under the law.  Alternatively, shall the Court grant the Movant’s Motion pursuant to Rule 4004(b), Movant should be limited to filing an objection pursuant to 11 U.S.C. § 727, as Movant’s Motion strictly seeks relief pursuant to Rule 4004(b), and Movant fails to seek the relief appropriate to warrant a pursuit of a complaint to determine dischargeability of its debt.

FACTS

Debtor is the debtor in the above-styled case and filed her Chapter 7 bankruptcy petition as a result of a pending divorce from her HUSBAND.  Debtor became liable on a floor plan loan with Movant, as a co-signer with HUSBAND, in order to help him with his automobile sales business.  When the business failed, neither Debtor nor husband was able to service the loan, at which time Movant obtained a judgment against both parties.  Now that Debtor and husband are separated, she is working part-time as a bookkeeper and taking care of the parties’ four children.  Debtor has no undisclosed assets, nor has she transferred assets prior to the filing of her Chapter 7 petition.  Up until the date of the filing of the Movant’s Motion, Debtor looked forward to a fresh start and a new financial beginning during a difficult time in her life.  The timeline in this matter will show the Court the Movant’s clear lack of diligent investigation and pursuit of discovery.  The events that have occurred to date are outlined as follows:

February 4, 2013: Debtor filed her voluntary Chapter 7 petition.  The next day, Debtor’s Counsel sent correspondence notifying Movant’s counsel of the Debtor’s bankruptcy status via regular mail and facsimile.  A true and correct copy of the said correspondence is attached hereto as “Exhibit A.” 

February 8, 2013:  The Clerk of Court filed a Certificate of Service of Debtor’s Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors & Deadlines (Document 9), indicating that the Deadline to Object to Debtor’s Discharge or to Challenge Dischargeability of Certain Debts is May 10, 2013. The Certificate also showed that Joseph Speetjens served a copy of the Notice upon Movant’s counsel.

February 27, 2013:  Debtor filed a Motion to Avoid Movant’s Judicial Lien on Exempt Property (Document 10) pursuant to 11 U.S.C. § 522 and served Movant’s counsel, president, managing director, and registered agent a copy of the same.  After service of the Motion upon at least four (4) individuals representing Movant’s company and despite claiming that Debtor has additional undisclosed assets, Movant did not respond to the Motion. Thirty-seven (37) days later, the Court issued an Order granting respondent’s Motion.

March 11, 2013:  Debtor attended her 341 Meeting of Creditors as originally scheduled.  Movant’s counsel also attended the 341 Meeting of Creditors.  However, Movant’s counsel did not ask Debtor a single question at the hearing, nor did counsel request any documents, examinations, or information from the Debtor. 

April 23, 2013:  Seventy-eight (78) days after Debtor filed her Chapter 7 petition and seventeen (17) days before the deadline to file an objection to dischargeability, Movant filed a Motion to Extend Time to Object to Discharge/Dischargeability, along with three Motions for a Rule 2004 Examination of Debtor, her ex-husband, and her father.Movant filed a Motion for an Expedited Hearing on all four motions, but subsequently scheduled a hearing on May 9, 2013, one day before the expiration of the deadline to file an objection to dischargeability.

At no time either before or after the said Motions were filed did Movant or Movant’s counsel contact Debtor’s counsel in order to schedule a 2004 examination, ask questions, request documents, or obtain information from the Debtor.  The timeline above shows that Movant’s counsel spent one (1) out of the seventy-eight (78) days before it filed a Motion for an Extension conducting discovery, if any, on the Debtor’s financial situation.

LEGAL AUTHORITY

Rule 4004(b) provides that a court may grant an extension to file an objection to discharge pursuant to 11 U.S.C. § 727 if the motion for the extension is filed before the expiration of the deadline to file the objection and if the extension is “for cause.”Fed.R.Bankr.P. 4004(b)(1).  Similarly, Rule 9006(b)(1) is a general rule that allows parties to seek extension of time to file a motion from the court for cause.  Since Rule 9006(b)(1) is not specific to extending objections to dischargeability, it will not be addressed. Rule 4007(c) provides that the Court may grant an extension to file an objection to determine dischargeability of a particular debt pursuant to 11 U.S.C. § 523 if the motion for the extension is filed before the expiration of the deadline to file the objection and if the extension is “for cause.”  Movant does not address this rule or request the relief provided therein; however, Movant does request additional time to file a Section 523 dischargeability complaint.  Thus, Rules 4004(b) and 4007(c) are discussed below.

Courts have applied both rules similarly and have found that the rules should be interpreted strictly in favor of allowing the debtor to obtain the timely resolution of all discharge matters and the prompt administration of the case.  In re Woods, 260 B.R. 41 (2001), citing Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992) and In re Schultz, 134 B.R. 604, 605 (Bankr.E.D. Mich. 1991); In re Grillo, 212 B.R. 744 (E.D.N.Y.1997).

Although determining whether an extension should be granted is within the bankruptcy court’s discretion, a creditor asking for an extension of time under either rule is required to show that there is justification for the extension and not “just because I ask.”  In re Miles, 453 B.R. 449, 451 (Bankr.N.D.Ga. 2011), quoting In re Garner, 339 B.R. 610 (Bankr.W.D.Tex 2006). That is, a creditor must show that there is a compelling cause or special circumstance for the extension and that there is a reason why the creditor could not finish its investigation within the time that is allotted under the Bankruptcy Rules.  Miles at 451; In re James, 186 B.R. 395, 397 (Bankr.N.D.Ga.1995). 

Most courts have given the term “for cause” a liberal construction and have adopted the opinion that the bankruptcy court has complete discretion as to the meaning of “cause.”  In re James, 186 B.R. 395, 397 (Bankr.N.D.Ga.1995), citing In re Sherf, 135 B.R. 810, 815 (Bankr.S.D.Tex.1991); In re Surgis, 46 B.R. 360, 362 (Bankr.W.D.Okla.1985); In re Knobel, 54 B.R. 458, 460 (Bankr.D.Col.1985).  Nonetheless, a creditor must show that it exercised some minimum degree of due diligence prior to asking for the extension, and the bankruptcy court cannot allow the creditor to have a license for a baseless “fishing expedition.”  James at 397, citing In re Leary, 185 B.R. 405, 406 (Bankr.D.Mass.1995); See also Miles at 451.   Extensions are inappropriate where the party seeking the extension has made no attempts at discovery during all or most of the time available to it.  Grillo citing 9 Collier on Bankruptcy ¶ T 4004.03[2] at 4004-13.  Thus, courts have typically denied extensions to creditors who have failed to act diligently to pursue discovery and to file objections to discharge prior to the deadlines on the basis that there is no just cause. Woods at 45, citing Grillo at 747. 

Several of the above-cited cases demonstrate the meaning of “for cause” with relationship to Rules 4004(b) and 4007(c) and provide much guidance in the case sub judice.  In Woods, the creditor filed a Rule 4007(c) motion for an extension of time to file a dischargeability complaint on the day of the deadline to file the complaint.  Woods at 42.  Prior to filing the motion, the creditor did not attend the 341 meeting of creditors, request a 2004 examination, or conduct any investigation.  Id. at 44.  The only investigation that the creditor conducted was to request a credit application, credit history, and sales receipts from third party sources about one month prior to the deadline, even though the creditor admitted it took up to 91 days to obtain such information.  Id. The court denied the creditor’s motion for an extension, finding that there was no just cause to grant the motion because the creditor failed to exercise due diligence to investigate its potential nondischargeability claim before the deadline.  Id. at 45.  The court noted that the creditor had 110 days from the date it received notice of the Chapter 7 filing and the deadline to conduct an investigation and failed to use the time allotted under the Bankruptcy Code.  Id.

Similarly, in Leary, the court denied a 4004(b) motion for an extension to file an objection to discharge where the creditor gave no reason for objecting to the discharge or for failing to file an objection or request for a Rule 2004 examination until ten days before the deadline.  Leary at 406.  The creditor in Leary attended the debtor’s 341 meeting but did not request a Rule 2004 examination and production of documents until seven weeks after the meeting.  Id.  The court stated that the creditor’s motion did not give any reason to suspect that there were grounds for an objection to discharge, nor did the motion explain why the creditor waited until ten days before the deadline to pursue a request for a 2004 examination.  Id.  The court found that the creditor failed to show cause pursuant to Rule 4004(b).  Id.  See also. 149 B.R. 115 (E.D.Mich. 1993).  In re Dekelata  (court ruled that creditors’ request for 2004 examination 11 days prior to the Rule 4007(c) was insufficient to show due diligence and cause for extending the objection deadline based on a motion filed on the day of the deadline).

In Grillo, the court denied a Rule 4004(b) motion for an extension on the day before the deadline where the creditor waited until five days before the deadline for filing an objection to request a 2004 examination and documents, finding that the creditor failed to exercise enough due diligence to support an extension for cause.  Grillo at 747.  The creditor in Grillo had two pre-petition judgments totaling to $1,879,720.60 against the debtor and claimed in its motion that it ascertained certain documents last-minute that showed a possible transfer of property from the debtor to family members.  The court held that the creditor failed to show a record that it made any effort to obtain information within the 60-day period following the meeting of creditors.  Id. at 747.  The court stated, “such inaction may not be rewarded with an extension of time to file objections to discharge and certainly fails to satisfy the cause requirement of Fed.R.Bankr.P. 4004(b).  The Miles court found that a creditor seeking an extension under Rules 9006(b)(1), 4004(b) and 4007(c) did not show cause warranting an extension because the creditor had at least four months from the time of the conversion of the case to a Chapter 7, along with nine months when the case was in a Chapter 11, to conduct discovery.  The court noted that the Debtor cooperated in providing information at his 341 meeting, allowed Rule 2004 examinations, and provided requested documents prior to the deadline.  Miles at 451.  On the other hand, the court in James found that, where debtors used several different social security numbers to apply for credit and concealed their identities, a 30-day extension for filing a complaint pursuant to 11 U.S.C. § 523 was justified.  James at 398.  The court held that because the debtors’ actions created complexities and special circumstances, the creditor showed just cause for an extension.  The court also noted that an extension would not burden the debtors or the bankruptcy court.  Id. In short, a creditor must demonstrate extremely special circumstances and due diligence in conducting discovery in order to obtain an extension pursuant to Rule 4004(b) or 4007(c).

ARGUMENT

Movant’s Motion should be denied.  The Movant here clearly fails to meet the “for cause” requirement pursuant to Rule 4004(b) or 4007(c) because it did not exercise a minimum degree of due diligence to conduct discovery prior to seeking its last-minute motions for Rule 2004 examinations and for an extension a mere seventeen (17) days before the deadline for objecting to dischargeability.  The Movant had notice of the Debtor’s Chapter 7 case the day after she filed the case, which was seventy-seven (77) days before Movant initiated any discovery. Further, the Movant’s motions cannot be heard until May 9, 2013, one day prior to the deadline for filing any objections. 

Perhaps Movant’s conduct is most comparable to the creditor in Leary, where the creditor attended the 341 meeting of creditors but failed to request any documents or ask for a Rule 2004 examination until ten days before the extension deadline.  Here, Movant’s counsel attended the 341 meeting and did not ask the Debtor a single question or request any documents.  Nor did Movant or its counsel contact Debtor’s counsel after the meeting to request any information or documents or attempt any type of discovery. However, just as in Leary, Movant waited until shortly before the extension deadline, and, without any specific basis, to file its requests for the examinations and extension. 

Even when comparing Movant’s conduct to that of the creditors in, say, Grillo or Woods, Movant has made less of an effort here than in those cases to engage in discovery.  In Grillo, which similarly involves family members and a large pre-petition judgment, the creditor at least brought forward some documentation that showed the Debtor’s potential interest in property.  Yet, the court still denied a motion for an extension.  In Woods, the creditor tried to obtain documents from third parties one month prior to the deadline; nonetheless, the court found that the creditor failed to exercise the requisite due diligence.  Here, Movant has basically taken one step toward discovery: attended a 341 Meeting.  Such lack of diligence fails to support the “for cause” requirement pursuant to Rules 4004(b) or 4007(c) allowing an extension.

It is also important to note that, just as in Leary, nowhere in Movant’s motion does it provide specific grounds for opposing the discharge in Debtor’s case.  Nor does Movant cite any special circumstances or complexities in this case that could be compared to the James case. In fact, Paragraph 5 of Movant’s motion simply states that it has a tenuous suspicion that Debtor has other “assets and liabilities” based on “information and belief.”  Such a statement lacks any true meaning or evidence of a justifiable cause or special circumstance for an extension.  The record and evidence in this case shows that Debtor is a mother of four children with a part-time bookkeeping job who was co-signed on Movant’s business loan with her husband, from whom she is separated.   Nothing in the record shows that Debtor owns any additional assets or has other liabilities that have not been fully disclosed on her Chapter 7 petition, nor has Movant proffered such evidence.  Movant’s request is a “fishing expedition” that is discouraged by Rules 4004(b) and 4007(c) and should be denied.

Movant’s request is based solely on the desire to conduct additional discovery that it could have started 77 days ago.  Paragraph 6 of Movant’s Motion states “this fast approaching deadline makes it increasingly difficult, and in fact unrealistic, for Movant to proceed with the three Rule 2004 examinations, conduct additional discovery as needed (e.g., requests for production), and be in a position to make an informed decision on a potential discharge objection on or before May 10, 2013. Rather than use the time allotted under the law, Movant cries about its inability to conduct discovery and adopts the “just because I ask” attitude discouraged by the court in Miles.

Movant’s failure to properly conduct an investigation under the law is no reason to allow an extension of time to file any objections to the dischargeability of the Debtor’s debts. Debtor is entitled to obtain the timely resolution of all discharge matters and the prompt administration of her case, and Debtor should not be punished for Movant’s shortcomings.