Complaints Objecting to Discharge or Dischargeability of Debts In Bankruptcy Must Be Timely Filed

A consumer debtor may choose to liquidate under Chapter 7 or reorganize under Chapter 11 or 13 (depending on the amount of outstanding indebtedness). See 11 U.S.C. § 109(e). A consumer debtor who successfully liquidates under Chapter 7 will receive a “discharge,” which is effectuated by the entry of a discharge order by the bankruptcy court. See 11 U.S.C. § 727(a)(1). A consumer debtor who successfully obtains court approval of a reorganization plan under Chapter 11 or 13 generally will receive a discharge following the completion of all payments required by the plan. See 11 U.S.C. §§ 1328(a), 1141(d)(5).

The discharge is the “heart of the fresh start provisions” of the Code. H.R. Rep. No. 595, 95th Cong., 1st Sess. 384 (1977) (reprinted in COLLIER ON BANKRUPTCY App. Pt. 4(d)(i)). A discharge under the Code releases a debtor from all debts that arose before the bankruptcy petition, with the exception of certain debts that are “nondischargeable,” regardless of whether a claim is filed. See 11 U.S.C. §§ 523, 727(b). A discharge also acts as an automatic and permanent injunction against a creditor’s attempts to recover those debts which were a personal liability of the debtor prior to bankruptcy. See 11 U.S.C. § 524(a).

Any creditor or party in interest may object to the entry of the discharg. See 11 U.S.C. § 727(c). Alternatively, a creditor may seek to establish that the debtor’s obligation to that creditor should not be discharged. See 11 U.S.C. § 523(c).[ 1 ] Section 523(a) sets out the types of debts that are not dischargeable in bankruptcy. Section 523(c), however, provides that the debtor will be discharged from a debt of a kind specified in subsection (a)(2) (debts for false representations), (a)(4) (debts for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny), and (a)(6) (debts for willful and malicious injury) unless the court determines such debts to be nondischargeable. A creditor objecting to discharge under § 727(a) or dischargeability under § 523(a)(2), (a)(4), or (a)(6) bears the burden of proof by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 286 (1991). “Intertwined with this burden is the basic principle of bankruptcy that exceptions to discharge must be strictly construed against a creditor and liberally construed in favor of a debtor so that the debtor may be afforded a fresh start.” Hudson v. Raggio & Raggio, Inc. (In re Hudson), 107 F.3d 355, 356 (5th Cir. 1997).

Dischargeability Objections under § 523
1. Divorce-Related Debts (§ 523(a)(15)) and Debts for Willful and Malicious Injury (§ 523(a)(6)) Are Discharged Upon Successful Completion of the Chapter 13 Plan
Turning to the discharge in Chapter 13 cases, a Chapter 13 debtor receives what is sometimes referred to as a “super discharge.” A Chapter 13 debtor is entitled to discharge of most, but not all, types of prepetition debts upon completion of payments under a Chapter 13 plan — including many of the otherwise nondischargeable debts listed in § 523(a). See 11 U.S.C. §§ 1328(a). Certain debts to a spouse, former spouse, or child of the debtor that are not domestic support obligations (§ 523(a)(15)) are among those that may be discharged in a Chapter 13 bankruptcy. See 11 U.S.C. §1328(a)(2). Section 1328(a)(2) also provides that debts for willful and malicious injuries under § 523(a)(6) are dischargeable in a Chapter 13 case with one notable exception — when the debtor seeks a hardship discharge under § 1328(b). Rule 4007(d) of the Federal Rules of Bankruptcy Procedure provides:

On motion by a debtor for a discharge under § 1328(b), the court shall enter an order fixing the time to file a complaint to determine the dischargeability of any debt under § 523(a)(6) and shall give no less than 30 days’ notice of the time fixed to all creditors in the manner provided in Rule 2002. On motion of any party in interest after hearing on notice the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.
FED. R. BANKR. P. 4007(d). Should the debtor at some time in the future seek a hardship discharge under § 1328(b), the plaintiff will have an opportunity to renew its objection to the dischargeability of its debt, if it so chooses, pursuant to § 523(a)(6).

At this stage in the debtor’s case, the plaintiff’s § 523(a)(6) claim is not ripe for decision because “resolution of the issue has no meaningful effect until and unless the debtor moves for hardship discharge, a contingency that occurs only in a small percentage of Chapter 13 cases.” Ambassadors Travel Services v. Liescheidt (In re Liescheidt), 404 B.R. 499, 505 (Bankr. C.D. Ill. 2009). As the Liescheidt court explained:

Where a debtor is proceeding toward a full compliance discharge, that would by definition discharge a Section 523(a)(6) debt, there is no reason to litigate the issue of whether the debt is, in fact, one for a willful and malicious injury. Whether it is or isn’t doesn’t matter, since it will be discharged either way if the debtor receives a full compliance discharge. Only if the debtor subsequently moves for a hardship discharge, which would not discharge a debt for a willful and malicious injury, would it matter. This principle is embodied in Rule 4007(d), which provides that when a debtor files a motion for hardship discharge, the court shall fix a deadline for creditors to file complaints under Section 523(a)(6) and provide notice of the deadline to all creditors.
Id. at 504. The same is true in this case. Unless and until the debtor seeks a discharge pursuant to § 1328(b), there is no reason to litigate whether the debt at issue is one for willful and malicious injury. The Court, therefore, concludes that the debtor’s motion for summary judgment with respect to the plaintiff’s § 523(a)(6) claim should be granted without prejudice in the event the debtor seeks a hardship discharge.

Complaints Objecting to Dischargeability Based on False Representations or Actual Fraud ( § 523(a)(2)(A)) Must Be Timely Filed
In contrast, several of the plaintiff’s claims in this case involve causes of action that are not part of the “super discharge.” Debts for false representations or actual fraud (§523(a)(2)(A)), for a domestic support obligation (§ 523(a)(5)), as well as several other types of debt not relevant here, may be excluded from discharge in a Chapter 13 case, just as they would be in a Chapter 7 case. See 11 U.S.C. § 1328(a)(2). However, the debtor asserts that the plaintiff’s § 523(a)(2)(A) claim is barred because the plaintiff failed to timely filed the adversary complaint.

A complaint objecting to dischargeability must be filed no later than 60 days after the first date set for the meeting of creditors. See FED. R. BANKR. P. 4007(c). Although the court is empowered to extend the time “for cause,” the motion to extend the time must be filed “before the time has expired.” Id. This restriction on extending the time is expressly excluded from the court’s general power to enlarge time periods after the fact. See FED. R. BANKR. P. 9006(b)(3). Thus, regardless of the circumstances, the Court has no power, after the bar date for filing a complaint has passed, to extend the time to file a complaint to determine dischargeability of a claim alleged to be excepted from discharge under §§ 523(a)(2)(A).

In one matter the plaintiff, argued that it obtained an extension of the deadline to object to dischargeability in this case. The Court did not enter an order granting the plaintiff such an extension. Rather, the plaintiff appears to argue that the Court should have understood its motion to file a late proof of claim as a motion to extend the deadline to file objections under §§ 523 and 727 as well. The plaintiff did not provide the Court with any authority to support its argument, and a review of its motion to file a late proof of claim does not support the plaintiff’s suggestion that this motion clearly sought additional time to object to discharge or dischargeability. Furthermore, the plaintiff’s motion to file a late proof of claim was filed after the deadline had passed for objecting to discharge or dischargeability. As a result thereof, the debtor was entitled to a discharge.