Published on:

Bankruptcy Court Denies Motion to Reopen Chapter 7 Case Because of Mistake of Law

A bankruptcy court recently denied a creditor’s motion to reopen a Chapter 7 case after discharge, finding that the creditor had failed to follow the proper procedure to preserve their claims. In re Lavandier, No. 14-bk-12553, mem. dec. (Bankr. S.D.N.Y., Aug. 27, 2015). The creditor sought to extend the deadline to claim an exception from discharge, 11 U.S.C. § 523; and to object to discharge, 11 U.S.C. § 727. The court held that, by not following the procedures established by the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, the creditor had not established good cause to reopen the case.

The creditor, a money transmitter, entered into an agency agreement with a corporation wholly owned by the debtor in 2009. Under this agreement, the corporation would accept money from customers on the creditor’s behalf to send overseas. The debtor signed a guaranty agreement making him personally liable for all money owed by the corporation to the creditor.

In 2013, the creditor filed suit in state court to recover amounts owed under the agency agreement. It obtained a default judgment holding the corporation and the debtor jointly and severally liable for more than $54,000. The debtor filed for Chapter 7 bankruptcy in September 2014.

The bankruptcy court sent a notice to all creditors advising them of various important dates. This included a December 9, 2014 deadline for filing a complaint objecting to a discharge of debt under § 727(a), or filing a claim alleging that a debt is excepted from discharge under §§ 523(a)(2), (4), or (6).

The parties agreed on December 29 as a date when the debtor was available for deposition. Since this was after the December 9 deadline, the creditor needed to extend the deadline. The creditor’s counsel, claiming to be acting “in reliance on [debtor’s] counsel’s statement,” filed an agreed “stipulation of adjournment, extending the time to object to Creditor’s discharge” on November 19. Lavandier, mem. dec. at 3.

The creditor filed the stipulation with the court clerk but did not obtain an order from the bankruptcy court extending the deadline. The court granted a discharge on December 23, 2014. The creditor conducted the debtor’s deposition as scheduled, but when it asked the debtor’s counsel to consent to reopening the case, the debtor’s counsel refused. The creditor moved to reopen the proceeding under 11 U.S.C. § 350.

The court denied the creditor’s motion, finding that it had failed to obtain an order extending the deadline to object to discharge. Fed. R. Bankr. P. 4004(b)(1). The creditor’s right to object to the discharge under § 727 therefore expired on December 9. The creditor made a second mistake of law, according to the court, which was “fatal.” Lavandier at 7. The stipulation did not mention exceptions to discharge under § 523. The particular exceptions claimed by the creditor, §§ 523(a)(2), (4), and (6), require a claim to be filed within 60 days of the creditors’ meeting. 11 U.S.C. § 523(c)(1), Fed. R. Bankr. P. 4007(c). Since the creditor did not do this, its right to claim an exception under § 523 had also expired.

Since 1997, Los Angeles bankruptcy attorney Devin Sawdayi has guided individuals and families through the Chapter 7 and Chapter 13 bankruptcy processes, helping them rebuild their finances with dignity and respect. Contact us online or at (310) 475-939 today to schedule a free and confidential consultation with a knowledgeable and experienced financial advocate.

More Blog Posts:

Supreme Court Rules that Chapter 7 Debtor Cannot Strip Underwater Second Lien from Home, Los Angeles Bankruptcy Lawyer Blawg, September 12, 2015

Court Rules that Fines Under California’s Private Attorney General Act Are Not Dischargeable in Chapter 7 Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, August 14, 2015

Chapter 7 Bankruptcy Case Reopened for Creditors Left Out of Debtor’s Schedules, Los Angeles Bankruptcy Lawyer Blawg, August 7, 2015