Best Practices Alert: Obtain Court Order When Extending Bankruptcy Deadlines By Michael L. MoskowitzBy Michael L. Moskowitz and Michele K. Jaspan

Attorneys who litigate are often faced with statutory deadlines. When the need arises to extend deadlines, it is not unusual for extensions to be routinely granted between counsel, often informally. But how often do bankruptcy practitioners, in particular, have stipulations extending statutory deadlines "So Ordered" by the court? Apparently, not often enough.

In a recent decision by Judge Stuart Bernstein, in In re FE M. Lavandier, Case No: 14-12553 (Bankr. SDNY, August 26, 2015), the court denied creditor's motion to reopen a chapter 7 bankruptcy case to permit the late filing of an adversary proceeding complaint. The creditor failed to, inter alia, obtain the court's approval for an extension of the deadline to object to discharge of its pre-petition judgment claim prior to the expiration of the complaint bar date. Although the legal predicate for this ruling is not applicable to all practitioners, the end result serves as a teachable moment.

Prior to the bankruptcy filing, the creditor obtained a default judgment against debtor and its affiliate based upon an action for conversion and enforcement of a guaranty. Debtor commenced his bankruptcy case immediately after the default judgment was entered. Notice of the complaint deadline was issued by the bankruptcy court clerk's office. The notice advised creditors of both the deadline to file a complaint objecting to debtor's discharge under 11 U.S.C. §727(a), and the deadline to determine that a debt owed to creditors was not dischargeable under 11 U.S.C. §523(a)(2), (4), or (6) ("Complaint Bar Date").

Creditor's counsel intended to depose debtor following the statutory meeting of creditors. The parties agreed to a deposition date that was beyond the Complaint Bar Date. Relying upon the advice of debtor's counsel, creditor's counsel electronically filed a stipulation extending the Complaint Bar Date, thereby permitting the deposition to proceed before the expiration of the deadline to which the parties had agreed. The stipulation, however, only extended the deadline for the filing of an objection to "the debtor's discharge in bankruptcy" (section 727) and failed to mention, or extend by its terms, the deadline to file a proceeding to determine the dischargeability of debtor's obligation to the creditor pursuant to section 523(a) of the Bankruptcy Code.

As previously set forth, creditor's counsel filed the executed stipulation on the bankruptcy court's electronic docket, but did not submit it for the court's consideration. As a result, it was never "So Ordered." Because there was no court order extending creditor's time to object to debtor's discharge, the bankruptcy court automatically entered an order discharging debtor from all of his dischargeable pre-petition obligations.

Not surprisingly, debtor refused to consent to creditor's request to vacate the discharge. Three months following the issuance of debtor's discharge, creditor's counsel moved to reopen debtor's chapter 7 case and vacate the discharge on the grounds of "mutual mistake."

Judge Bernstein determined there were two mistakes, both of which compelled denial of the motion. First, the creditor failed to comply with Bankruptcy Rule 4004(b)(a), which provides the bankruptcy court may extend the deadline to object to the debtor's discharge, on motion by a party, after notice and hearing, and for cause shown. The court made it clear that the rule requires a court order even where the parties stipulate to the extension, and the parties were "not free to enter into private agreements to change deadlines mandated by statute or rule." The court went on to hold that the prior motion to extend the deadline must be filed prior to the expiration of the applicable time period.

Had the court determined the discharge resulted from mutual mistake, it would have had no effect on the issue of non-dischargeability. Thus, the second fatal mistake was the omission of any reference to the extension of creditor's time to object to the dischargeability of the debt pursuant to 11 U.S.C. §523(a)(4). The court opined that counsel's ignorance of the law did not justify the relief sought and, accordingly, the motion to reopen the case and vacate the discharge order must be denied.

There are many lessons to be learned here in order to best protect yourself and your clients.

  • Takeaway #1: Never rely on the advice of opposing counsel.
  • Takeaway #2: Know and understand all applicable legal and procedural authorities and statutes.
  • Takeaway #3: Proofread your work to make sure it reflects your intended
    result and have colleagues proofread it as well.
  • Takeaway #4: Have all bankruptcy stipulations "So Ordered" by the court.
  • Takeaway #5: Consult and retain experienced bankruptcy counsel if your firm does not regularly appear before the bankruptcy courts.

Richard Weltman & Michael Moskowitz | weltmosk.com

About Weltman & Moskowitz, LLP, A New York and New Jersey Business, Bankruptcy, and Creditors' Rights Law Firm:

Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors' rights, bankruptcy, foreclosure, and business litigation. Michael L. Moskowitz, a partner with the firm, focuses his practice on business and bankruptcy litigation, as well as creditor's rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Michael can be reached at (212) 684-7800, (201)794-7500 or mlm@weltmosk.com. Michele K. Jaspan is an associate of the firm.