Opinion
No. 98 Civ. 00693 (BSJ)
January 12, 2000
Opinion and Order
Before this Court is the appeal of Stuart J. Kerzner, the debtor, from an order entered by the United States Bankruptcy Court for the Southern District of New York granting the motion of the chapter 7 Trustee, Hal M. Hirsch, to extend the time of the Trustee to object to the debtor's discharge until March 16, 1998. This appeal presents the question of whether the conversion of a bankruptcy case from chapter 11 to chapter 7 provides a new sixty day period in which to file a complaint objecting to the discharge of the debtor. Because this Court concludes that such a conversion does set a new bar date, it affirms the order of the bankruptcy court.
The bar date is the deadline for filing complaints objecting to the discharge of the debtor pursuant to 11 U.S.C. § 727 and complaints to determine the dischargeability of a debt pursuant to 11 U.S.C. § 523.
I.
On January 21, 1997, Kerzner filed a voluntary petition for bankruptcy pursuant to chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida. On January 27, 1997, the court scheduled the meeting of creditors pursuant to 11 U.S.C. § 341 for February 28, 1997, and set the bar date as April 29, 1997.
On April 28, 1997, Rina Kerzner, the debtor's former wife, moved to extend the time to file a complaint objecting to both the debtor's discharge and the dischargeability of certain debts of the debtor. On April 29, 1997, Rina Kerzner's motion was granted by Bankruptcy Judge Robert A. Mark. Judge Mark's order extended the deadline for filing a complaint until June 29, 1997. On May 22, 1997, Judge Mark granted Rina Kerzner's motion to transfer venue of the debtor's bankruptcy case to the Southern District of New York. At the hearing granting Rina Kerzner's motion, Judge Mark also granted debtor's ore tenus motion to covert the case from chapter 11 to chapter 7.
Debtor's chapter 7 case was transferred to this District on or about July 1, 1997. Subsequent to the transfer, Hal M. Hirsch was appointed as the debtor's interim trustee. After receiving the case, the Clerk of the Bankruptcy Court scheduled the meeting of creditors pursuant to 11 U.S.C. § 341 for September 17, 1997, and set the bar date as November 17, 1997.
On November 13, 1997, the Trustee moved to extend the time to file a complaint objecting to the discharge of the debtor to March 16, 1998. On December 9, 1997, the debtor objected to the Trustee's motion on the grounds that: (1) Judge Mark's order had already extended the bar date; (2) the length of the extension was unwarranted; and (3) the Trustee had not sought previously to amend or modify Judge Mark's order. On December 11, 1997, a hearing was held before Bankruptcy Judge Burton R. Lifland. At the hearing, the debtor objected to the extension, but did not "actively pursue that part . . . [of its argument] to the length of the extension requested by the Trustee." Debtor's Mem. at 10. After hearing argument, Judge Lifland granted Trustee's motion and extended the time to file objections to the debtor's discharge until March 16, 1998. This appeal followed.
II.
At bottom, debtor's argument is that Judge Mark's extension order set the bar date by which objections to the debtor's discharge and to the dischargeability of certain debts had to be filed, and that because this extended deadline has passed, Judge Lifland was without power to grant an extension of time to the Trustee.
A. The Bar Date
As the Court of Appeals for the Eight Circuit noted in F M Marquette National Bank v. Richards, 780 F.2d 24 (8th Cir. 1985), a chapter 11 petition and a chapter 7 petition are separate and distinct proceedings. As happened in the instant case, upon the filing of a debtor's chapter 11 petition, a meeting of the creditors is scheduled, and a bar date for filing objections to discharge is set for approximately sixty days thereafter. A petition under chapter 11 is an order for relief, see 11 U.S.C. § 301, and the conversion of a bankruptcy case from chapter 11 to chapter 7 also constitutes an order for relief. See 11 U.S.C. § 348(a). Furthermore, a meeting of creditors is required to be held within a reasonable time after an order for relief. See 11 U.S.C. § 341(a). Thus, a new meeting of creditors is required upon conversion from chapter 11 to chapter 7. See Richards, 780 F.2d at 25 (citing Bankruptcy Rule 1019(2)). This new meeting of creditors is not a continuation or extension of the meeting of creditors in the previous chapter 11 proceeding. See id. Rather, it is a separate and distinct meeting in which a new trustee must be selected. See id. (citing 11 U.S.C. § 348(e); Advisory Committee Note to Rule 1019(2)).
The time fixed for filing a complaint to determine dischargeability of a debt is keyed to the first date set for the meeting of creditors. See Bankruptcy Rule 4007(c). Because the meeting of creditors that is required upon a conversion from chapter 11 to chapter 7 is unrelated to the meeting held in the previous chapter 11 proceeding, the Richards court concluded that the date fixed for the meeting is "the first date set for the meeting of creditors within the context of Rule 4007(c), . . . [and held] that creditors receive a fresh sixty day period for filing their complaints." Richards, 780 F.2d at 25.
Debtor's interpretation of § 348(a) is that a conversion does not cause a change in the date of the order for relief. Further, because a meeting of creditors was held in the previous chapter 11 proceeding, the opportunity to file complaints objecting to debtor's discharge has expired. This Court, based on the analysis in Richards, disagrees.
Section 348(a) provides that "those provisions of the Code which are keyed to the date of entry of the order for relief for their operation are unaffected . . . by conversion." 2 W. Collier, Collier on Bankruptcy § 348.02 (15th ed. 1979). The time fixed for filing dischargeability complaints, however, is keyed not to the date of the order for relief but to the first date set for the meeting of creditors. See Richards, 780 F.2d at 26 (citing Rule 4007(c)).
For purposes of the dischargeability of debts, the conversion becomes the order for relief in the converted proceeding. See id. (citing 11 U.S.C. § 348(b)). Thus, all debts that arose before the date of the conversion are discharged, "except as provided in 11 U.S.C. § 523."Id. (citing 11 U.S.C. § 727(b)). Section 523 provides for the filing of dischargeability complaints and sets out the grounds for such complaints. As the Richards court concluded, "[i]t necessarily follows from the interplay of these statutory provisions that a conversion from chapter 11 to chapter 7 provides creditors with a new sixty day period in which to file their dischargeability complaints `following the first date set for the meeting of creditors held pursuant to § 341(a)' in the converted chapter 7 proceeding. Id. (quoting Rule 4007(c))".
As in Richards, the debtor in the instant case argues that because a meeting of creditors was held in the previous chapter 11 proceeding, his creditors should have only one opportunity in which to file their dischargeability complaints, regardless of the fact that he voluntarily converted to another chapter.
As the Richards court stated, however, creditors may be less likely to file a dischargeability complaint in a chapter 11 proceeding where a reorganization plan may provide payments to them in full as opposed to a chapter 7 proceeding where their rights are determined by liquidation.See id. Adopting debtor's position that creditors do not receive a fresh sixty day period after conversion from chapter 11 to chapter 7 would mean that a debtor, knowing that creditors have not filed their dischargeability complaints within the sixty day period, could then discharge those debts by converting the case from chapter 11 to chapter 7 after the filing period has expired. Such an interpretation would allow a debtor who may have fraudulently procured a debt to discharge that debt based on an unwarranted construction of a procedural rule. See id. Neither Congress in its enactment of section 348(a) nor the Advisory Committee in its promulgation of Rule 4007(c) intended such a result. See id.
Moreover, debtor never addresses the unequivocal language of Rule 1019. Rule 1019(2) provides: "When a chapter 11 has been converted . . . to a chapter 7 case: a new time period for filing claims, a complaint objecting to discharge, or a complaint to obtain a determination of dischargeability of any debt shall commence pursuant to Rules 3002, 4004, or 4007." Fed.R.Bankr.P. 1019(2). Most importantly, the Advisory Committee Notes to the 1987 Amendment state:
[T]he rule is expanded to include the effect of conversion of a chapter 11 or 13 case to a chapter 7 case. On conversion of a case from chapter 11 or 13 to a chapter 7 case, parties have a new period within which to file claims or complaints relating to the discharge or the dischargeability of the debt. This amendment is consistent with the holding and reasoning of the court in F M Marquette Nat'l Bank v. Richards, 780 F.2d 24 (8th Cir. 1985).
Advisory Committee Note to 1987 Amendments.
As a result, the bar date was properly set for November 17, 1997, and the time for filing complaints objecting to debtor's discharge did not, as Kerzner claims, expire on June 29, 1997.
B. Motion for Extension of the Deadline
Having concluded that the conversion to chapter 7 provided a new bar date for the filing of complaints to determine the dischargeability of debts, the second issue is whether the bankruptcy court had the power to grant Trustee's motion to extend the expiration of the bar date. This Court concludes that Judge Lifland was within his authority in granting Trustee's motion.
Bankruptcy Rule 4004 provides in relevant part:
(a) In a chapter 7 liquidation case a complaint objecting to the debtor's discharge under § 727(a) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to § 341(a).
(b) On motion of any party in interest, after hearing on notice, the court may extend for cause the time for filing a complaint objecting to discharge. The motion shall be made before such time has expired.
Fed.R.Bankr.P. 4004. In the instant case, the motion for an extension of time was made before "time ha[d] expired." Rule 4004(b). Judge Lifland concluded that cause existed to extend time because of: (1) the complex circumstances of the case; and (2) "the lack of any opportunity of the parties to react to the conversion." December 11, 1997 Tr. at 13. This Court concludes that Judge Lifland properly granted an extension pursuant to Rule 4004(b).
CONCLUSION
For the foregoing reasons, this Court affirms the order of the Bankruptcy Court authorizing an extension of time in which complaints objecting to discharge and dischargeability may be filed.