Opinion
No. EBK 75-225
December 29, 1978
Discharge — Complaints — Extensions of Time for Filing
Discharge and dischargeability complaints have their own special rules as provided in Bankruptcy Rules 404(c) and 409(a)(2) governing extensions of time for filing and are not subject to the limitations of Bankruptcy Rule 906(b).
Creditor's discharge complaint was filed almost six months later than the date ordered by the court as being the last date for filing such complaints. No formal application for an extension of time had been filed and no written order for such extension was entered. However, at the time the complaint was filed, a discharge had not yet been granted, and the court proceeded to issue a summons for the bankrupt, fixing his time to answer and setting a date for trial. The defendant filed his answer and did not object, until the trial, to the late filing of the complaint.
The court failed to sustain bankrupt's objection to the late filing of the discharge complaint. First, the court noted that Rule 906(b), which allows enlargement of time after the expiration of the specified period only upon applicant's showing of "excusable neglect" is not applicable to complaints for discharge or dischargeability. Instead, Rules 404(c) and the last sentence of 409(a)(2) specificially govern extensions of time for filing complaints. If Rule 906(b) were to govern in these instances, Rules 404(c) and 409(a)(2) would be superfluous.
Rule 404(c), which provides for extension of time for filing a complaint objecting to discharge, does not mention when the court must act, nor does it say that the expiration of the time originally set for filing such complaints shall add any prerequisites for the granting of an extension of time to file. In allowing the creditor to file a late complaint, the court held that "neither a formal application for an extension, nor a finding of excusable neglect, was a prerequisite for extending the time for filing this complaint." In addition, the court stated that "when, without a formal order of extension, the court proceeds to issue a summons and hold a trial, it will be presumed that the time for filing has been extended by the court." See Rule 404(c) at ¶ 20,124, Rule 409(a)(2) at ¶ 20,129 and Rule 906(b) at ¶ 20,336.
Denial of Discharge — Bankruptcy Rules — Burden of Proof
Bankruptcy Rule 407 imposes a burden of proof on the person objecting to discharge to prove the "facts essential to his objection" to discharge and the mere arousing of suspicion is insufficient to sustain this burden.
The objecting creditor contended that bankrupt should be denied a discharge under Section 14c(1) of the Bankruptcy Act on the basis that the bankrupt made a false and fraudulent oath in failing to mention a lawsuit terminated within the year immediately preceding the filing of the bankruptcy petition and further, on the basis that bankrupt's petition schedules did not list as an asset a promissory note in the amount of $30,000 and secured by the promissory note of another. The $30,000 note was in settlement of the lawsuit and had been delivered about 11 months prior to the filing of the petition in bankruptcy.
Bankrupt admitted the existence of the note in his answer and at trial but alleged in his answer and testified in court that he did not own the note at the time the bankruptcy petition was filed as it had been assigned to his deceased wife's mother for a valuable consideration. Further, bankrupt claimed that his failure to mention the lawsuit was due to the fact that he simply had not realized when preparing his statement of affairs that the suit was still pending within a year of the filing of the petition. Creditor claimed that assignment of the note was merely part of an elaborate scheme by bankrupt and his family to insulate the proceeds of the note from bankrupt's creditors.
The only witnesses called by either party were the bankrupt himself and an officer of the bank which handled payments on the note which secured the $30,000 note to bankrupt. According to the bank officer, the bank had no knowledge of the assignment of the note to bankrupt's motherin-law. The bankrupt testified that the bank had instructions to deposit bankrupt's share of the note in a "Robert's Grocery" account. His explanation for this was that the bankrupt and his deceased wife had been loaned money by bankrupt's mother-in-law which he had been repaying by assignment of the note in question. When bankrupt's son opened "Robert's Grocery" with insufficient capital, his grandmother gave the proceeds of the note to her grandson by having the bank deposit the monthly proceeds of the note to the grocery's account. Bankrupt, from the time the grocery opened until the filing of the petition, worked in the grocery, had no other employment at that time, and did not receive a salary although he testified that he received his house payment and food and that his son helped him pay his bills. In addition, bankrupt's girl friend worked in the store part time and was one of the two people who could sign the store's checks.
Bankrupt's testimony was not corroborated, nor was it contradicted. The court found that "the circumstances are certainly enough to arouse suspicion. But suspicion is not proof. The burden of proof in this case is squarely on the plaintiff to establish that assets were purposely concealed." The court explained that when the creditor showed the existence of the note and bankrupt's failure to list it in his schedules and his failure to disclose the settlement of the law suit, the burden of going forward shifted to the bankrupt who met this burden with the above explanation. The creditor offered no direct contradiction of the bankrupt's testimony. While the circumstances may seem suspicious, the court pointed out that these were small business people who may not keep careful records, and that there was nothing to indicate that bankrupt was contemplating bankurptcy at the time he allegedly assigned the note to his mother-in-law. This explanation that he simply did not recall that the lawsuit had occurred within twelve months preceding the filing of the petition was not unreasonable.
In dismissing the creditor's complaint, the court held that creditor failed to meet the substantive burden of proof imposed on it by Bankruptcy Rule 407. See Sec. 14c(1) [§ 727(a)(4)] at ¶ 10,119 and Rule 407 at ¶ 20,127.