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Trustee Permitted to Extend Deadline for Complaint She Could Not File

A bankruptcy court in Illinois granted a Chapter 7 trustee’s request to extend the 60-day bar date for creditors to challenge the dischargeability of certain debts under Bankruptcy Code Sec. 523 even though the trustee did not have standing to file her own Sec. 523 complaint. In addition, the trustee was not required to serve her motion for an extension of time on the debtor personally; service on the debtor’s counsel by electronic means was adequate, the court determined.

Background

The trustee filed a motion for an extension of time because the original deadline to object to discharge would pass before the continued meeting of creditors would take place. The debtor did not personally receive a copy of the motion but his attorney received notice of the filing electronically through the court’s CM/ECF system.

After the original deadline had passed but before the expiration of the extended filing deadline, one of the debtor’s creditors filed a complaint seeking to except from discharge the debtor’s debt owed to him. The debtor moved to dismiss the complaint, arguing that the complaint was untimely because the trustee did not have standing to request an extension of the original filing deadline.

Bankruptcy Rule 4007(a) provides that only the debtor or a creditor may file a complaint to determine the dischargeability of a debt, and Rule 4007(c) provides that dischargeability complaints must be filed within 60 days after the first date set for the meeting of creditors. However, the bankruptcy court may extend the 60-day deadline upon the request of a “party in interest.”

Circuit Split

The Bankruptcy Code does not define the phrase “party in interest,” and the courts are split on whether a Chapter 7 trustee is a party in interest with standing to request an extension under Rule 4007(c). The Fourth Circuit in In re Farmer, 786 F.2d 618 (4th Cir. 1986), held that the trustee did not have standing to request an extension because the trustee did not have an “economic interest” in excepting individual debts from discharge.

The Sixth Circuit in Brady v. McAllister (In re Brady), 101 F.3d 1165 (6th Cir. 1996), rejected the reasoning of Farmer. The Brady court took exception with the Fourth Circuit’s conclusion that the trustee did not have an economic interest in the outcome of a Sec. 523 lawsuit because nondischargeable debts share estate distributions pro rata with dischargeable debts. Therefore, the trustee’s had an interest in the outcome of the lawsuit that was sufficient to confer standing to request an extension of time under Rule 4007(c).

Important policy considerations supported this conclusion. The Farmer rule could create an administrative burden in cases with thousands of creditors, as each creditor with a Sec. 523 claim would be required to file its motion for an extension of time. A more efficient approach would be to allow the trustee to file a single motion for an extension.

Farmer also overlooked the distinction between who may challenge the dischargeability of debts and who may request an extension of time to file a Sec. 523 complaint. The bankruptcy court assumed that the distinction between who may file a dischargeability complaint (the debtor or creditors) and who may seek an extension of the deadline (a party in interest) was intentional, and consequently, the meaning of a party in interest as used in Rule 4007(c) was not limited to creditors and the debtor.

Debtor Properly Served

The debtor argued that he did not receive proper notice of the trustee’s motion because the motion was not personally served upon him. The motion was served only on the debtor’s attorney through CM/ECF.

Rule 4007(c) does not establish service requirements for motions to extend. The bankruptcy court reasoned that the lack of express service requirements in Rule 4007(c) “cuts against the notion” that the rule requires personal service. The court noted that other rules in Part IV of the bankruptcy rules expressly require personal service. For example, motions seeking to avoid a lien (Rule 4003), motions seeking relief from the automatic stay (Rule 4001(a)(1)), and motions to obtain credit (Rule 4001(c)(1)) all require personal service.

Applying rules of statutory construction, the court determined that the exclusion of a personal service requirement in Rule 4007(c) was intentional, and a motion for an extension under Rule 4007(c) may be served on opposing counsel. The debtor’s counsel was served electronically. As a registered user of CM/ECF, the debtor’s counsel consented to receiving electronic notices and waived any right to personal service.

Cyrnek v. Oliva (In re Oliva), 591 B.R. 328 (Bankr. N.D. Ill. 2018)