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MONTH-IN-BRIEF (Oct 2018)

Bankruptcy Law

Extension Obtained By Chapter 7 Trustee For Filing of Section 523 Complaints Deemed Valid 

By Michael Enright

U.S. Bankruptcy Court Judge Donald Cassling, in the Northern District of Illinois, recently weighed in on the vexing issue of who has standing to request an extension of time to file nondischargeability complaints under Section 523 in a Chapter 7 case. The issue has split the Courts of Appeal. The court ruled that an extension obtained at the request of the Ch. 7 trustee was valid by denying the debtor’s motion to dismiss the subsequently filed Section 523 complaint. Cyrnek v. Oliva, Adv. No. 18-00189 (October 23, 2018). As the court explained, Rule 4007(a) governs when a Section 523 complaint may be filed by a debtor or any creditor. Based on the language of that subsection of the rule, a 1984 U.S. District Court in the same district  dismissed an adversary proceeding brought after an extension obtained by a Ch. 7 trustee, on the basis that the Ch. 7 trustee had no standing to obtain the extension, rendering the complaint untimely. Declining to follow that caselaw, the court concluded that the language of Rule 4007(c), which governs extensions of this period, was broader than Rule 4007(a), and the provision permitted a party in interest, including a Ch. 7 trustee, to make the request. The ruling aligns with the Sixth Circuit’s holding in Brady v. McAllister, 101 F.3d 1165 (6th Cir. 1996), and departs from the Fourth Circuit’s holding in In re Farmer, 786 F.2d 618 (4th Cir. 1986). The court noted that the 7th Circuit has not ruled on the issue. Practitioners representing prospective plaintiffs interested in filing a nondischargeability complaint, as well as those undertaking the defense of such actions, might consider whether any extension of time sought by a Chapter 7 trustee can effectively preserve the extension in their jurisdiction, unless and until the Supreme Court decides the issue and creates a uniform holding.   

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