Bankruptcy Court Reviews Creditor’s Remedies to Object to Discharge After Deadline Has Expired

Bankruptcy Court Reviews Creditor’s Remedies to Object to Discharge After Deadline Has Expired

On May 10, 2019, the United States Bankruptcy Court for the Southern District of New York ruled on a creditor’s motion to extend the deadlines to object to the Debtor’s discharge.

Prior to filing bankruptcy, the Creditor filed a state civil suit alleging the Debtor committed fraud and breached his fiduciary duty by making unauthorized trades while working as the Creditor’s Chief Investment Officer and portfolio manager. The suit was followed up by an arbitration proceeding in which the arbitrator sustained the Creditor’s claims and awarded the Creditor approximately 16.8 million dollars.

On October 12, 2018 the Debtor filed his bankruptcy petition. The following dates are relevant for this opinion:

  • November 16, 2018—first date set for 341 Meeting
  • December 7, 2018—adjourned date for 341 Meeting
  • December 20, 2018 – (approximate date) Debtor’s counsel orally agreed to Creditor’s counsel’s request to seek an extension of the discharge deadline.
  • January 2, 2019 – Creditor’s counsel emails Debtor’s counsel a stipulation for signature agreeing to extend the discharge deadline. This was not returned to Creditor’s counsel.
  • January 15, 2019—deadline to object to discharge as reflected in the Notice
  • February 4, 2019—filing of Motion to extend the deadline to object
  • February 5, 2019—60 days after the 341 Meeting was actually held.

Subsequently, Debtor’s counsel filed an objection to the motion to extend acknowledging that he agreed to stipulate to extend the deadline to object to discharge before the deadline expired, but argued that the Creditor had the burden to either “obtain the stipulation” or timely move for an extension, both of which it failed to do. Creditor’s counsel asserts that she sent a stipulation consenting to the extension that was never returned.

The bankruptcy court addressed three issues.

  1. Under the Bankruptcy Code and Rules what is the deadline for a creditor to file an objection to discharge or file for an extension of that deadline?
  2. If the deadline has expired, does the court have authority to extend the deadline on equitable grounds?
  3. If the deadline has expired, under what circumstances can a creditor still object to discharge?

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