Simply filing a motion to extend the deadline for objecting to discharge or dischargeability does not extend the deadline indefinitely, according to District Judge Fred Biery of San Antonio, who upheld a decision by Bankruptcy Judge Craig A. Gargotta.

The creditor’s counsel laid a trap and then stepped into it, despite having been warned.

The individual debtor filed a voluntary chapter 7 petition. The first meeting of creditors was adjourned several times. Bankruptcy Judge Gargotta of San Antonio entered an order extending the deadline for objecting to discharge or dischargeability until 60 days after the conclusion of the meeting.

The creditors’ meeting concluded on February 19, making April 18 the deadline.

On April 10, the creditors filed a timely motion to extend the deadline. The court set a hearing for June 2.

On May 29, several days before the hearing, the creditors filed a complaint objecting to dischargeability.

At the June 2 hearing, counsel for the creditors asked Judge Gargotta not to rule but to mark the extension motion as moot.

Both Judge Gargotta and counsel for the debtor warned the creditors that mooting the motion without an order extending the deadline might render the complaint untimely. The creditors insisted on mooting the extension motion, so Judge Gargotta complied.

One week later, the debtor filed a motion to dismiss the dischargeability complaint, contending it was untimely. The deadline was April 18, the debtor said, but the complaint was not filed until May 29, 41 days late.

Judge Gargotta dismissed the complaint as untimely. The creditors appealed, to no avail. In an opinion on February 26, District Judge Biery upheld dismissal.

Judge Biery described the creditors as asking him to rule that “the mere filing of a motion to extend time to object to dischargeability ‘suspends’ the objection deadline, perhaps indefinitely.” He disagreed, based on Bankruptcy Rules 4004(b) and 4007(c).

Given the “plain language” of the rules, there are five elements to resolve before signing an order that extends a dischargeability deadline, Judge Biery said. Three were satisfied, but two were relevant: (1) The court must hold a hearing; and (2) the court must decide whether there was cause to grant the extension.

The “Bankruptcy Court was never afforded the opportunity to rule on appellants’ Motion to Extend because — rather than showing cause as to why appellants’ extension should be granted — appellants requested that the Bankruptcy Court mark their Motion to Extend as moot,” Judge Biery said.

Mooting the motion “[e]ffectively render[ed] the Bankruptcy Court unable to make a finding whether cause exists to extend the filing deadline or rule on appellants’ Motion to Extend.”

“With no Motion to Extend to which appellants’ Complaint could relate back,” Judge Biery upheld dismissal because the “appellants’ Complaint was untimely.”

Observation

The creditors are appealing to the Fifth Circuit. Reversing the lower courts would be a “big deal.”

Why? As it now stands, the bankruptcy court must approve an extension of a deadline. If filing an extension motion is enough, the bankruptcy court would be removed from the equation.

Without court review, a creditor unable to show “cause” could obtain an extension automatically.