Objection to Discharge Should Have Been Dismissed as Untimely

Posted by NCBRC - April 30, 2015

The chapter 7 trustee failed to continue the creditors’ meeting to a specified date as required by Rule 2003(e) and therefore his later objection to discharge was untimely. In re Jenkins, No. 14-1385 (4th Cir. Apr. 27, 2015). In Jenkins, the creditors’ meeting was scheduled for July 11, 2012, but when the debtor failed to appear the court rescheduled for July 19, at the same time extending the deadline for filing any objection to discharge to 60 days after the conclusion of the meeting. At the July 19th meeting, the trustee’s attorney was not satisfied with the debtor’s disclosures and ended the meeting with the statement: “I am going to talk with the trustee and, if he determines that we can adjourn the meeting, we will file a notice of that, but officially the meeting is continued.” The trustee never filed a notice of continuance or reconvened the meeting. On September 26, 2012, sixty nine days, after the July 19th meeting, the trustee filed a complaint objecting to discharge. The debtor opposed the complaint on grounds of untimeliness. The bankruptcy court found the complaint timely and granted summary judgment in favor of the trustee, denying the debtor’s discharge. The district court affirmed.

The Fourth Circuit reversed and remanded.

Pursuant to Rule 4004(a), a complaint objecting to discharge must “be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).” Paragraph (b) of that rule permits an extension “for cause.” Unless certain exceptions apply, once the deadline for objection has passed, the court shall grant the chapter 7 discharge.

On appeal, the court found that because the bankruptcy court granted the trustee 60 days from the conclusion of the creditors’ meeting, the controlling issue was when that meeting was closed. The trustee argued that the meeting did not close on July 19th, but on either August 7, 2012, when the court purged the debtor of contempt for missing the earlier creditors’ meeting, or on May 9, 2013, when the trustee filed the notice of adjournment. In either case, the September 26th objections were timely. The debtor countered that because the trustee concluded the creditors’ meeting without setting a continuation date, July 19th marked the point at which the clock began to run.

The court found that despite the trustee’s counsel’s attempt to continue the meeting on July 19th, he failed to comply with Rule 2003(e) which provides that: “[t]he meeting may be adjourned from time to time by announcement at the meeting of the adjourned date and time. The presiding official shall promptly file a statement specifying the date and time to which the meeting is adjourned.” Because the trustee did not comply with the rule by announcing a new date and time, and issuing a written statement of rescheduling, the court found that the meeting closed on July 19th. In so holding, the court acknowledged that prior to 2011, Rule 2003(e) permitted the continuation of the creditors’ meeting merely by setting a new date at the meeting without the necessity of written notice. In 2011, to address indefinite adjournments of creditors’ meetings, the rule was amended to add a requirement that the notice of continuation be in writing. The court found that if it were to adopt the trustee’s position it would be permitting precisely what the Rule as amended was intended to prevent.

The court distinguished In re Peres, 530 F.3d 375 (5th Cir. 2008), where the Fifth Circuit applied a case-by-case, four-part, inquiry to find that a delay of eleven months between the adjournment sine die and the reconvened meeting was not unreasonable. Peres was factually distinguishable in that, unlike in Jenkins, the meeting was ultimately reconvened. But more importantly, Peres interpreted the pre-2011 Rule and explored reasonable restraints on a trustee’s ability to postpone a meeting. The amendment to the rule eliminated the need for that analysis by dictating the method by which a trustee may continue the meeting. In holding that the July 19th meeting was concluded on that date, the court emphasized that the value of finality provided by a deadline outweighed, at least in this case, the trustee’s valid arguments against discharge.

Though it held the trustee’s feet to the fire with respect to continuing the creditors’ meeting, the court declined to adopt a bright line approach under which a meeting that is not adjourned in accordance with Rule 2003 must be deemed concluded. Rather, it found that Rule 2003’s lack of a specified consequence for failure to comply with its requirements leaves room for leniency. “We see no upside to hamstringing future courts that may reasonably find a trustee substantially complied with Rule 2003(e).” The court also found that a bankruptcy court’s equitable powers may be employed to relax the result of strict application of the Rule 2003 deadline.

Jenkins 4th cir opinion

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  1. By Bankruptcy News Briefs 5/1 | NACBA Now on May 1, 2015 at 4:27 pm

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