Agreement for Extension of Time Not Enforceable Without a Court Order

The recent case of In re Alazzeh from the Ninth Circuit Bankruptcy Appellate Panel emphasizes the harsh results that can occur when a litigant fails to obtain a court order approving an extension of time even when there has been a stipulation between the parties.

In this case, Mr. Alazzeh borrowed $140,800 in 2008 from Mr. Shahrestani, and agreed to pay the loan in full by August 2010.  When Alazzeh failed to timely repay the loan, Shahrestani obtained a state court judgment against him for the full amount of the loan, in addition to interest, costs, and attorney fees.  In an effort to discharge that debt, Alazzeh filed a Chapter 7 Bankruptcy case in October 2011.

Shahrestani felt that he had grounds to seek the denial of discharge under a variety of theories under Section 727 of the Bankruptcy Code, including false oath, failure to keep and preserve records, fraudulent transfer of property, and failure to explain a loss of assets.  Under Bankruptcy Rule 4004, a complaint seeking a denial of discharge must be filed no later than sixty days after the date first set for the meeting of creditors, unless the Court orders an extension of time following a motion filed before the expiration of the sixty day deadline.

In this case, the deadline date for the filing of the complaint was February 6, 2012.  The attorneys for the parties exchanged e-mail correspondence, and agreed to an extension of time until February 28 for the filing of the complaint.  Shahrestani’s attorney did not file a motion with the Court seeking an extension of time, nor did the parties file a stipulated order with the Court to extend the deadline date.  The complaint was actually filed on February 24, four days prior to the deadline date agreed upon.

Some months later, the parties conducted discovery and later attempted the mediate the dispute.  A tentative settlement was reached, but was later rescinded.  Alazzeh then filed a motion for summary judgment seeking a ruling that he was entitled to judgment as a matter of law because the complaint was not filed before the February 6 deadline and no extension was granted by the Court.  Despite the previous agreement reached between the parties, the Bankruptcy Court granted Alazzeh’s motion, and dismissed Shahrestani’s complaint as untimely.  Shahrestani appealed the ruling to the Bankruptcy Appellate Panel.

The Panel affirmed the Bankruptcy Court’s ruling, holding that “the deadlines which implicate a debtor’s discharge are strict, and 'without qualification,’ cannot be extended by the bankruptcy court unless a motion is made before the deadline expires.”  The Panel also rejected Shahrestani’s argument that Alazzeh waived the deadline in light of the fact that he agreed to an extension and then later attempted to mediate the matter, noting that the e-mail correspondence suggested that a stipulated order would be presented to the Bankruptcy Court.

Though Alazzeh’s conduct does appear to be a case of “dirty pool”, the Panel did get this case right.  Shahrestani’s attorney should have known from the text of Rule 4004 that a mere stipulation would not suffice, and that either a motion or a stipulated order filed with the Bankruptcy Court would be necessary to extend the deadline.  Though I can’t know for sure, I suspect that Shahrestani filed a malpractice claim against his attorney.

This post is intended to be purely informational in nature, and cannot be considered legal advice.  If you have questions related to time deadlines in bankruptcy, please call our office at (503) 545-1061 (Oregon cases) or (360) 836-4238 (Washington cases) to schedule a free initial consultation.