Courts have long held that the Bankruptcy Code provides a discharge only to those “honest but unfortunate debtors.” To that end, when a debt has been incurred under false pretenses, false representation, or outright fraud, the Bankruptcy Code allows the debtor’s creditors to file a nondischargeability complaint against the debtor. However, in order for the creditor to challenge the dischargeability of a debt, the creditor must file his or her nondischargeability complaint in a timely manner. A creditor who fails to file a timely complaint (or to seek a “for cause” extension) risks losing the right to challenge the discharge of the allegedly fraudulently acquired debt. Rule 4007(c) of the Federal Rules of Bankruptcy Procedure (“FRBP”) sets forth a strict sixty-day time limit in which such a nondischargeability complaint must be filed. Specifically, the rule provides:
Except as otherwise provided . . . a complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a). The court shall give all creditors no less than 30 days' notice of the time so fixed in the manner provided in Rule 2002. On motion of a party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.
Despite the apparent clarity of the rule, questions remain as to whether there may be any retroactive extensions granted for the filing of nondischargeability complaints outside of the sixty-day period. Some courts have reasoned that since the bankruptcy court is a court of equity, relief should be available to litigants under limited circumstances. On the other hand, some courts refuse to extend the equitable power of the bankruptcy court when faced with a clear directive from the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure. The former view has been called the “procedural” view, while the later has been called the “jurisdictional” view.
This Article will discuss under which circumstances, if any, might a bankruptcy court use its equitable power to save a creditor from the tardy filing of a nondischargeability complaint. Part I of this Article will discuss the recent case, Anwar v. Johnson, where the Ninth Circuit held that a bankruptcy court could not use equity to grant relief to creditors who filed their nondischargeability complaint after a strict deadline. Part II will discuss the divide between the so-called “jurisdictional” and “procedural” courts, and whether such distinctions actually matter for litigants. Finally, Part III will discuss the implications for attorneys practicing in either jurisdiction, in light of the Anwar decision and other developments in the law.