Circuits Split on Trustee’s Ability to Extend the Dischargeability Deadline

On an issue where the circuits are split, Bankruptcy Judge Donald R. Cassling of Chicago ruled that a chapter 7 trustee has standing to extend the dischargeability deadline under Section 523(a), even though a trustee has no standing to object to the discharge of a debt owed to a particular creditor.

On another issue where authorities are not unanimous, Judge Cassling also held in his October 23 opinion that serving a motion to extend the dischargeability deadline is sufficient if given electronically to the debtor’s counsel.

In a chapter 7 case, the trustee filed a motion to extend the time for objecting to discharge and dischargeability under Sections 727 and 523 because the first meeting of creditors had been adjourned and would not have been completed prior to the original deadline. The trustee served the motion on all creditors, but not on the debtor. The trustee did serve the debtor’s counsel electronically through the CM/EFC system.

After the original deadline but before the extended deadline, a creditor filed an objection to dischargeability under Section 523(a). The debtor filed a motion to dismiss, contending that the deadline extension was invalid because the debtor lacked standing. The debtor also argued that service was defective because she had not been served personally with the extension motion.

The circuits are split on the first question, Judge Cassling said. In 1986, the Fourth Circuit held that a trustee was not a party in interest and thus lacked standing to extend the dischargeability deadline under Section 523(a). Ten years later, the Sixth Circuit rejected the Fourth Circuit’s reasoning and held that a trustee can extend the deadline, although the trustee cannot object to the dischargeability of a particular debt.

In the absence of a ruling by the Seventh Circuit, Judge Cassling was persuaded by the Sixth Circuit’s decision, which he said was “better reasoned,” followed the plain language of the Bankruptcy Rules, and comported with “important policy considerations.” Observing that it was not binding on him, Judge Cassling declined follow a 1984 opinion by an Illinois bankruptcy judge who had anticipated the Fourth Circuit’s holding.

Judge Cassling placed emphasis on the difference in language between Bankruptcy Rules 4007(a) and 4007(c). The former says that only a “debtor or any creditor” may file a complaint to determine the dischargeability of a debt.

However, Rule 4007(c), governing the time for filing a dischargeability complaint, more broadly provides that the court may extend the deadline “[o]n motion of a party in interest . . . .”

Judge Cassling concluded that a trustee is a party in interest under Rule 4007(c) because the Seventh Circuit has held in chapter 11 that a party in interest is someone with an interest in the debtor’s assets, “‘namely the debtor (or the trustee in bankruptcy. . .) and the creditors.’” The Fourth Circuit definition, he said, was more narrow because the Richmond-based appeals court requires a party in interest to have an economic interest.

Given Seventh Circuit authority, Judge Cassling concluded that the trustee was “clearly a party in interest,” thus “explicitly” giving him standing to extend the dischargeability deadline under Rule 4007(c). Were it otherwise, hundreds of creditors in a large case would each be required to file extension motions if the first meeting of creditors was not concluded before the original dischargeability deadline.

Judge Cassling then turned to the question of whether electronic service of the extension motion on the debtor’s attorney was sufficient. The outcome depended in part on whether the extension motion commenced a contested matter, because Rule 9014 incorporates Rule 7004 by requiring service on the debtor at the address shown on the petition.

Some rules, including Rules 4003(d) and 4004(d), require compliance with Rules 9014 and 7004. However, Rule 4007(c) “is silent as to service,” Judge Cassling said. He concluded “that the exclusion was intentional,” meaning that the trustee was only obliged under Rule 7005 to serve opposing counsel.

In turn, Rule 9036 allowed the trustee to complete service electronically on the debtor’s counsel through the CM/EFC system. Because the debtor’s attorney was her registered agent, service of the extension motion was “not defective due to a lack of service,” Judge Cassling ruled.