How To Defeat the Creditor’s Motion to Extend Time To Object to Bankruptcy Discharge

Posted by on Apr 4, 2012 in Discharge in Bankruptcy | 1 comment

Oftentimes in bankrutpcy , creditors pursue the dischargeability of claims against the bankrupt debtor.   In such cases, these creditors believe debtors have engaged in a pattern of fraud.   In other cases, creditors are unsure whether fraud exists, but the creditor is unwilling to give up its claim via a bankruptcy discharge.  Thus, such creditors may ask the court for an extension of time to object to the debtor’s discharge.

In such cases, debtors must fight back where appropriate.  Bankruptcy Rule 4004(b) states in relevant part:

On motion of any party in interest, after hearing on notice, the court may extend for cause the time for filing a complaint objecting to  discharge.

(Emphasis added).

Last I checked, there was no authority at the Court of Appeals level that had defined the necessary cause for an extension of time.[1]  However, court generally take a narrow approach and recognize that the good cause necessary to grant an extension “stringent standard . . . only [to] be given in narrow circumstances.”[2]

While the power to extend deadlines rests completely within the discretion of the Court, at the very least, the moving party must establish a reasonable degree of due diligence to establish sufficient cause.[3]  This requirement of due diligence remains steadfast whether the movant seeks an extension of time to file an objection to discharge or nondischargeability under Rules 4004(b) and 4007(c).[4]

In Sirmans, the objecting creditors filed a request for time extension on the last day possible under Rule 4007(c).  An extension was requested for the purposes of conducting discovery on a related state court matter and to conduct a Rule 2004 examination of the debtor.  This was not a case where the debtor or debtor’s counsel acted non-responsively to creditor requests, and thus, the District Court affirmed the bankruptcy court’s determination that an extension was inappropriate where the only action taken by the creditor up to that point was the attendance of the meeting of creditors

Therefore, a potentially unvigilant creditor best beware that it must take timely and appropriate action where it intends to fight dischargeability issues, and a debtor should also understand not to allow a creditor additional time to bring objections where the creditor has failed to take action in a timely manner.

[1] In re Sirmans, 2009 WL 1356813 (E.D. Cal. 2009).

[2] Id., (noting that In re Magourik, 693 F.2d 948 (9th Cir. 1982) had been superseded, and rejecting the contention that bankruptcy courts should liberally grant or have ample discretion to grant an extension of time for “excusable neglect”).

[3] In re Farhid, 171 B.R. 94, 96-97 (N.D. Cal. 1994) (stating that the power to extend deadlines under Rules 4004(b) and 4007(c) is to be “exercised cautiously and not where lack of diligence by the creditor appears.”).

[4] Id. at 97 (citing In Re Littell, 58 B.R. 937 (S.D. Tex. 1986) (“Where creditor fails to show diligence in gathering facts to support an objection to discharge or nondischargeability complaint prior to the bar date, the bankruptcy court acts within its discretion in denying a motion for extension of time”).

 

One comment on “How To Defeat the Creditor’s Motion to Extend Time To Object to Bankruptcy Discharge”

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