Shifting Tides: Missing the Deadline to Object to the Discharge of Debt [1]

Imagine this scenario: A judgment is won, the defendant filed for bankruptcy, but the judgment creditor missed the deadline to file a complaint objecting to the discharge of the debt. Normally, this means that the judgment will be discharged unless the court is convinced to accept a late-filed complaint. This is a high hurdle typically requiring the creditor to raise a constitutional issue of fraud by the debtor.

Yet two recent decisions might provide an alternative argument to creditors. Courts may now accept a late-filed complaint if the debtor was put on notice of the creditor’s intent to object to the discharge of the debt prior to the deadline expiring. These decisions expand the previously restrictive use of the relation-back doctrine to something much broader and may signal a departure from the traditional adherence to strict deadlines.[3]

In re Thompson

In 2017, Thompson set the framework for a broader application of the relation-back doctrine.[4] In this case, a judgment creditor missed the deadlines under Bankruptcy Rules 4004 and 4007.[5] The creditor then argued that his late-filed complaints should relate back to a his previously filed a motion to lift the stay.[6] The court agreed.[7]

In so doing, the court confronted whether flexibility should be given to the Rule 4004 and 4007 deadlines and whether a pleading was sufficient for a notice-based exception. After reviewing Covert v. McGuirt,[8] In re Rand [9] and In re Mendenhall,[10] the court concluded that in general, if a prior pleading provides the debtor with actual notice of the intent to challenge the discharge of a debt, then the relation-back doctrine might be used to accept a late-filed complaint.[11]

Beem v. Ferguson

In 2018, the Eleventh Circuit in Ferguson had to decide whether an untimely complaint objecting to the discharge of a debt could be related back to a creditor’s motion to dismiss.[12] Normally, one of the permitted uses of the relation-back doctrine is for amendments to complaints.[13] Therefore, the issue was whether the motion to dismiss constituted a complaint that the untimely objection could be related back to.[14] Relying primarily on Federal Rule of Civil Procedure 8, the court held that the motion to dismiss was the functional equivalent of an original adversary complaint, thus the untimely objection could be related back to it.[15]

Analysis

Historically, the deadlines in Rules 4004 and 4007 have required strict construction.[16] As such, the relation-back doctrine applied only in cases where the objection to discharge had been mistakenly filed in the main case rather than as an adversary proceeding[17] or in cases amending a complaint.[18] The reason for the amendment exception was because Federal Rule of Civil Procedure 15(c) and Rule 7015 permitted the relating back of documents so long as a party was sufficiently notified of the litigation and claims being asserted.[19]

By themselves, Thompson and Ferguson are fairly unremarkable. However, when combined, these decisions might support a broad expansion of the relation-back doctrine. For example, the Thompson court ignored the historical restrictions on the usage of the relation-back doctrine for only amendments and misfilings. Instead, the court focused on the notice aspect discussed by Rules 15 and 7015 to expand the doctrine to any pleading that provided sufficient notice to the debtor. Then, the Eleventh Circuit in Ferguson concluded that the pleading was the functional equivalent of a complaint. One reading of this is that Ferguson bolsters Thompson by holding that essentially any pleading is a complaint and therefore the relation-back doctrine would apply. An even broader hot take? If the debtor has any form of sufficient notice, then that would be enough to relate back an untimely filed objection.[20]

Finally, there might be valid criticism of these cases. Specifically, these decisions may conflict with the “central purpose” of the Bankruptcy Code, which requires strict adherence to deadlines to give debtors a “fresh start.”[21] Notably however, the courts in Thompson and Ferguson were expressly cognizant of this central purpose but also sought to balance it with other policies. In particular, the Eleventh Circuit’s opinion in Ferguson emphasized that the “Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome,” and the Collier Bankruptcy Practice Guide provides that “pleadings must be construed so as to do justice.”[22] Thus, for the courts in Thompson and Ferguson, equally important as a debtor’s right to a fresh start was ensuring that the case was decided on the merits.

Conclusion

The recent decisions in Thompson and Ferguson perhaps signal a departure from a strict construction of Rules 4004 and 4007 and toward increased procedural flexibility for the creditor. However, it is too early to tell whether this idea has both reach and longevity. At least for the Fifth and Eleventh Circuits, the relation-back doctrine is now an option for creditors that may be used to relate back untimely objections to pleadings filed before the deadline had expired. So long as the pleading provides sufficient notice to the debtor of the creditor’s intent to object to the discharge of a debt, creditors may now be able to overcome a missed Rule 4004 and 4007 deadline without needing to raise a constitutional issue or fraud.