In re Billings
| Decision Date | 22 October 1992 |
| Docket Number | Bankruptcy No. 92 B 2055,Adv. No. 92 A 0874. |
| Parties | In re William Thomas BILLINGS. IRVING FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. William T. BILLINGS, Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
James T. Ryan, Ryan, Nelson & McSherry, Arlington Heights, Ill., for plaintiff.
Gus A. Paloian, of Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for the defendant, debtor.
This matter comes before the court on the motion of William Thomas Billings ("Billings" or "Debtor") to dismiss as untimely the Complaint for Objection To Discharge filed by Irving Federal Savings & Loan Association ("Irving Federal") pursuant to Rule 7041 of the Federal Rules of Bankruptcy Procedure. The court has considered the following: Defendant's Motion To Dismiss, Response to Defendant's Motion To Dismiss, Reply of William T. Billings To Response of Irving Federal To Motion to Dismiss, Second Response of Irving Federal to Motion to Dismiss, Reply Memorandum of William Billings to the Second Response of Irving Federal to Motion to Dismiss, and corresponding exhibits and attachments. For the reasons stated herein, the court hereby grants Billings' motion to dismiss.
The court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Local Rule 2.33 of the Northern District of Illinois referring bankruptcy cases and proceedings to this court for hearing and determination. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(J).
On January 30, 1992, Billings filed a voluntary petition under Chapter 7 of the Bankruptcy Code.1 The original deadline for objecting to the Debtor's discharge or the dischargeability of any of Billings' debts was May 5, 1992. Irving Federal is Billing's largest unsecured creditor. On April 29, 1992, Irving Federal appeared before the court to extend the date within which it might file an adversary complaint objecting to the discharge of the debtor. The court extended the date for filing objections to the dischargeability of Irving Federal's debt to May 29, 1992 to coincide with the newly revised schedule for document production. On May 27, 1992, the parties again appeared before the court on a second motion by Irving Federal to extend the date to file objections to the discharge of the debtor and dischargeability of the debt due to discovery difficulties. The court reluctantly agreed to allow Irving Federal until June 26, 1992 to file its complaint objecting to the dischargeability of Irving Federal's debt.
On June 26, 1992, Irving Federal filed its Complaint For Objecting To Discharge pursuant to § 727. Billings subsequently filed his motion to dismiss Irving Federal's complaint as untimely. In his motion, Billings contends that the court granted extensions of time solely to enable Irving Federal to file an adversary complaint under § 523, and Irving Federal was therefore bound to the original deadline of May 5, 1992 within which to file a complaint alleging grounds for denial of discharge under § 727. Irving Federal contends that although the court "misassumed" that Irving Federal would proceed under § 523, rather than § 727, the court's belief is irrelevant because the same principles would apply regardless of whether the extension of time was for a § 523 or a § 727 complaint. Irving Federal further alleges that the court used the terms "discharge" and "dischargeability" interchangeably throughout the relevant hearings and thus, because the court "unequivocally" granted extensions, Irving had until June 26, 1992 to file a complaint under either § 523 or § 727. In its Response, Irving Federal hints that even if the court did not extend the time to file a complaint under § 727, it has the equitable power to now do so. The sole issue before the court is whether Irving Federal properly followed the procedure outlined in Federal Rule of Bankruptcy Procedure 40042 for obtaining an extension of time in which to file a complaint under § 727.
Section 727 is the "heart of the fresh start provisions of the bankruptcy law." H.R.Rep. No. 595, 95th Cong., 1st Sess., at 384-385 (1977); S.Rep. No. 989, 95th Cong., 2d Sess., at 98-99 (1978). This section compels the court to grant the debtor's discharge unless one of the enumerated conditions is satisfied. A Chapter 7 discharge relieves the debtor from all dischargeable debts and functions to enjoin actions to enforce or pursue all dischargeable claims against the debtor. If the debtor is denied a discharge for any reason, all claims against the debtor, regardless of their nature, will survive the bankruptcy; and, as a result, all creditors compete for the debtor's post petition assets.
Section 727 serves a policing function by ensuring that only honest debtors are permitted to take advantage of the bankruptcy laws. Prairie Production Credit Assoc. v. Suttles (In re Suttles), 819 F.2d 764, 766 (7th Cir.1987) (citing Matter of Garman, 643 F.2d 1252, 1257 (7th Cir.1980), cert. denied, 450 U.S. 910, 101 S.Ct. 1347, 67 L.Ed.2d 333 (1981)). Under this section, conditions for denial of discharge include proof of the debtor's mishandling of property; failure to produce adequate books and records; commission of bankruptcy crimes; failure to explain losses; failure to obey a court order or answer questions; improper acts in another bankruptcy case; and, earlier discharge within a certain time frame. The existence of any of these circumstances would clearly prejudice the rights of all creditors. Consequently, the Code permits all creditors to allege facts sufficient to deny a debtor a discharge of all of his or her debts under § 727. The court, however, is obligated to apply this section liberally to protect the debtor. Suttles, 819 F.2d at 764. In this context, the Advisory Committee Notes accompanying the rules remind courts to take into account the difficulty of proving the existence or nonexistence of facts as to which evidence is likely to be more accessible to the debtor than to the objector. Thus, courts generally allow the burden to shift to the debtor once the objecting party has established the basis for the objection, See, e.g., Meridian Bank v. Alten (In re Alten), 958 F.2d 1226, 1233 (3d Cir.1992).
Section 523, in contrast to § 727, assumes that the debtor is allowed a discharge and exempts from that general discharge specified debts. Section 523 provides the basis for objecting to dischargeability of specific debts, and unlike section 727, one creditor does not state another creditor's basis for objecting to dischargeability. Section 523(c)(1) reads, in part:
". . . the debtor shall be discharged from a debt of the kind specified in paragraph (2), (4), and (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6) . . ." (emphasis added).
The rationale for excluding certain debts from discharge is that the debtor acted in an improper manner at the time the he or she incurred the specific debt. Subsections (2), (4), and (6) focus on the debtor's prior dealings with an objecting creditor, rather than on actions which necessarily affect the rights of all creditors. In addition, § 523 exempts from discharge specified debts for policy reasons not here applicable. The standard of proof is clear. To obtain an exemption of a specific debt from a discharge under § 523, a creditor must demonstrate by a preponderance of the evidence that one of the conditions of § 523 is satisfied. See Grogan v. Garner, 495 U.S. 918, 110 S.Ct. 1945, 109 L.Ed.2d 308 (1990). In addition, the discharge provisions of § 523 are to be construed strictly against the creditor and liberally in favor of the debtor. In re Pochel, 64 B.R. 82, 84 (Bankr.C.D.Ill.1986).
Discharge and dischargeability are also governed by distinct procedural rules. Rule 4004 sets forth the procedure for granting or denying discharge under § 727. Rule 4007 governs determination of dischargeability of a debt under § 523. Both 4004(a) and 4007(c) set a strict deadline of sixty days following the first meeting of the creditors under § 341(a) by which a "party in interest" may dispute the discharge of the debtor and the dischargeability of the debts. Rules 4004(b) and 4007(c) also provide that there will be no extension of time to file a complaint unless a motion is made before the sixty day limit has expired. See Anwiler v. Patchett (In re Anwiler), 958 F.2d 925, 927 (9th Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 236, 121 L.Ed.2d 171 (1992). If a motion for an extension is timely made, the court may extend the time to file a complaint under § 727 for cause. F.R.Bankr.P. 4004. Likewise, rule 4007 permits the court to extend the relevant period for cause on the motion of a party in interest during the initial 60 day period.
Nevertheless, these rules are not identical. "Party in interest" carries distinct meanings under 4004 and 4007. Rule 4007(a) provides that a "debtor or creditor" may file a complaint under § 523 to determine the dischargeability of specific debt. Section 727(c)(1), on the contrary, describes those who may file a complaint objecting to the debtor's discharge as the "trustee or creditor." The diverse meanings of "party in interest" again underscore the difference between discharge and dischargeability. A trustee acts for the entire creditor body and thus is not nor should he or she be concerned with the dischargeability of a specific debt. Clearly, a debtor has no rhyme or reason to object to his or her own discharge, but may well want a determination of the dischargeability of a specific debt. A creditor, such as...
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