Debtor’s Prior Bankruptcy Discharge Vacated Six Years Later

By Diane Davis

A disbarred lawyer’s second bankruptcy case filed within two years of his first Chapter 7 case can be reopened and the discharge vacated as a clerical error, the U.S. Bankruptcy Court for the Eastern District of California held.

The court has an “independent duty” to enforce Bankruptcy Code Section 727(a)(8), which bans two Chapter 7 discharges in cases filed within eight years, Judge Christopher M. Klein wrote Jan. 18.

A question arises, however, when there is a conflict between the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, but the conflict must be resolved in favor of the statute, the court said.

Gerald W. Filice received two Chapter 7 discharges wiping out his debt within two years. The error went undetected for six years until Filice tried in a third bankruptcy case to enforce the second discharge while fighting a tax debt.

The U.S. trustee “incorrectly assumed” that time limits for objecting to discharges under Federal Rule of Bankruptcy Procedure 4004(a) and for revoking discharges under Section 727(e) prevented him from undoing the discharge, the court said.

Nobody questioned Filice’s eligibility for a second Chapter 7 discharge, the court said.

Rule 4004 is invalid to the extent it requires entry of a discharge in violation of Section 727(a)(8) if no objection is timely filed, the court said.

In 2010, Rule 4004 was amended to permit discharge objections based on Section 727(a)(8) to be made by a contested matter motion instead of an adversary motion, the court said. An adversary motion must be filed and served on the other party in a formal process.

The rationale for the change was that the issues involved didn’t warrant the formalities of an adversary proceeding, but the amendment led to the “inference that if nobody timely objects, then it is too late to block a second discharge” within the banned period, the court said.

Federal Rule of Civil Procedure 60(a) and Section 105(a) enable the court to correct the mistake in granting Filice’s second bankruptcy discharge, the court said.

Notice of this court’s action will go out to all creditors, who may be able to act on their outstanding claims, the court said.

Gerald W. Filice, Sacramento, Calif., represented himself; Boris Kukso, Dept. of Justice, Washington, represented the U.S.

The case is Filice v. United States (In re Filice) , 2018 BL 17258, Bankr. E.D. Cal., 10-47748, 1/18/18 .

To contact the reporter on this story: Diane Davis in Washington at ddavis@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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