Creditors Cannot Rely on Verbal Agreement to Extend Deadline

Posted by NCBRC - September 30, 2022

The creditors were not entitled to have the court vacate its order of discharge where they claimed their untimely objection was in reliance on a verbal agreement between the debtor’s counsel and the trustee to extend the deadline but the court never ordered any extension. In re Kharlanov, No. 22-70984 (Bankr. E.D.N.Y. Sept. 22, 2022).

The original meeting of creditors in the debtor’s chapter 7 bankruptcy was scheduled for June 15, 2022, with a deadline to object to discharge under section 727, or to discharge of a debt under section 523, set for August 15, 2022. The debtor did not appear at the meeting. The creditors’ counsel asserted that at that meeting the debtor’s counsel and the trustee entered into a verbal agreement to extend the deadline for objecting to discharge for sixty days after the date the debtor attends the adjourned meeting of creditors. The debtor appeared at the next July 6 meeting of creditors. No party filed a stipulation or motion with the court to extend the deadline for objection, and the court entered a discharge order in accordance with the original deadline.

Shortly thereafter the creditors sought to vacate the order under Rule 60(b). They presented the arguments that, 1) in entering the order the court made a mistake due to its lack of awareness of the verbal agreement to extend the time to object, or 2) that the creditors’ failure to timely object was due to excusable neglect in reliance on the debtor’s counsel’s representations that the deadline was extended.

The debtor opposed the motion on five bases: 1) that no agreement extending the deadline existed, 2) that, while there was discussion of an extension if necessary, the debtor cooperated with the trustee’s investigation rendering the extension unnecessary, 3) that even if there were an agreement between the debtor and the trustee, that agreement would not extend to the creditors 4) that the creditors never sought an extension, and 5) that any extension would apply only to an objection to discharge under section 727, and would not apply to discharge of specific debts under section 523.

The court began its analysis with the creditors’ contention that because the court was unaware of the verbal agreement to extend the deadline, its entry of the discharge order was due to “mistake.” The court disagreed finding that it acted in accordance with the deadlines set in the case. Therefore, it had no discretion to vacate the order due to “mistake.”

With respect to the creditors’ claim of excusable neglect, the court was likewise unmoved. Citing Rule 9006(b)(3), the court noted its leeway to extend the objection-to-discharge deadline was limited by the parameters set forth in Rules 4004(a), and 4007(c). Those rules specify that the time for filing must begin to run on the date of the first scheduled meeting of creditors and any motion to extend that time must be filed before the original deadline expires. In this case, that cut-off date was August 15th. The creditors did not file their motion to vacate the order and to extend the deadline to object until August 26th.

The creditors argued that they relied on the verbal agreement and that holding them to the original deadline would merely reward debtors who fail to appear at the meeting of creditors. The court was unpersuaded, finding that the creditors should not have relied on a verbal agreement that did not involve them, and that, in any case, the only extension that matters is one set by the court, and no such extension was in place here.

The court denied the motion to vacate the discharge order and extend the deadline for objection.

Kharlanov Bankr ED NY Sept 2022


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