Levens, Matter of, 77-2218
| Decision Date | 28 November 1977 |
| Docket Number | No. 77-2218,77-2218 |
| Parties | In the Matter of Farrar H. LEVENS, Bankrupt. Lloyd E. NICHOLS and Irene Nichols et al., Appellants, v. Farrar H. LEVENS, Appellee. Summary Calendar. * |
| Court | U.S. Court of Appeals — Fifth Circuit |
Don L. Baker, Austin, Tex., for appellants.
D. Michael Dalton, Houston, Tex., for appellee.
Appeal from the United States District Court for the Western District of Texas.
Before GOLDBERG, RONEY and FAY, Circuit Judges.
Once a bankruptcy trustee files a report placing exempt property beyond the grasp of creditors, Bankruptcy Rule 403(c) allows the creditors only 15 days to object. In this case, the creditors missed the deadline, and the district court refused to consider their objection. We reverse that judgment because the trustee's failure to file his report within the time required by the rules deprived the creditors of constructive notice of the filing, and they received actual notice no more than 14 days before they objected.
Bankruptcy Rule 403 provides, in part:
(b) Trustee's Report. The trustee shall examine the bankrupt's claim for exemptions, set apart such as are lawfully claimed and allowable, and report to the court the items set apart . . . . The report shall be filed with the court no later than 15 days after the trustee qualifies. . . . (emphasis added)
(c) Objections to Report. Any creditor or the bankrupt may file objections to the report within 15 days after its filing, unless further time is granted by the court within such 15-day period. . . .
(e) Approval of Report if No Objections. If no objections are filed within the time provided by this rule, the report shall be deemed approved by the court. . . .
The rule makes no provision for the creditors to get notice of the trustee's filing, and places on them the burden of checking the court's records during the 15 day period after the trustee qualifies.
In this case, the trustee was appointed on June 25, 1975. The following day, creditors sent him a letter challenging the bankrupt's claimed homestead exemption. On July 10, the time for the trustee's filing passed, but no report was made. The creditors inquired periodically and as late as September 9, but were not informed on September 26, when the trustee filed the report. The report allowed the challenged homestead exemption. Not until September 30 did the trustee mail the creditors a letter which, while it did not mention the filing, did state his decision concerning the exemption. The creditors' attorney received the letter on October 2. On October 15, the day the bankruptcy court approved the report, the creditors first learned for sure that the report had been filed. They submitted their objections on October 16. In a subsequent hearing, the bankruptcy judge held the objections were not timely submitted and so, under the rule, could not be considered. The district court affirmed.
While a bankruptcy court is a court of equity, it is necessarily bound by the rules Congress has adopted to guide its deliberations. This case, however, presents a situation for which the rules offer little help. Creditors are entitled to notice before their property rights are cut off, and economy dictates that they withhold their objections until they are sure the trustee disagrees. Rule 403(b) provides constructive notice to them by requiring the trustee to file his report within 15 days of qualification. Once that period passes, however, the constructive notice either evaporates or the creditors must shoulder the onerous burden, not intended by the rules, of checking court records daily for an indefinite period of time.
The trustee's delay upset the equipoise of rights and duties envisioned by the rules,...
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