Lakhany v. Khan (In re Lakhany)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 5 months ago

Citation:

In re Lakhany, No. CC-14-1486-BrDKi (9th Cir. B.A.P. Sep. 28, 2015).

Tag(s):

Ruling:

A creditor without notice of a chapter 7 case may bring a § 523 action after the deadline applicable to creditors with notice—and after case closure. A closed case need not be reopened before a § 523 action is filed. A request for a determination of the scope of the discharge should be brought in an adversary proceeding.

Procedural context:

The chapter 7 debtor did not list Khan as a creditor. After closure of the bankruptcy case, and without knowing of the bankruptcy, Khan attempted to serve the debtor as a defendant in a state-court action. After learning of the bankruptcy, Khan moved to reopen the bankruptcy case in order to bring a § 523 action. The bankruptcy court granted the motion and reopened the case. Khan then filed his § 523 complaint against the debtor. He also filed a motion in the main case seeking relief from the automatic stay to add the debtor as a defendant in the state-court action in order to litigate, among other things, the merits of the nondischargeability action in the state court. His motion also sought relief from the § 524 discharge injunction and annulment of any automatic stay violations that he might have committed. The bankruptcy court granted that motion. On appeal, the BAP affirmed after recasting the stay-relief order as a declaratory judgment that the discharge did not bar the § 523 action.

Facts:

Although reopening a case to file a § 523 action “is good practice, it is not necessary.” The automatic stay had terminated upon the grant of the discharge, so it was not in effect when Khan attempted to serve the debtor, and no stay relief was necessary. Khan’s request for relief from the discharge injunction should have been treated as a request for declaratory relief regarding the injunction’s scope, which should have been brought in an adversary proceeding. But where material facts are undisputed, the questions are purely legal, and the factual record is as well-developed as it would have been in an adversary proceeding, it was harmless error for the bankruptcy court to rule on the discharge question in the main case. Because no debt to Khan was scheduled and he did not have notice of the bankruptcy case in time to object to dischargeability, the deadline to file a § 523 action that was applicable to creditors with notice did not apply to Khan. § 523(a)(3)(B). Because the discharge does not discharge nondischargeable debts, it does not bar an action to determine the dischargeability of a debt. The BAP recast the bankruptcy court’s stay-relief order as a declaratory judgment that the discharge injunction does not enjoin Khan’s § 523 action.

Judge(s):

Randall L. Dunn and Ralph B. Kirscher, Bankruptcy Judges, and Philip H. Brandt, United States Bankruptcy Judge for the Western District of Washington, sitting by designation. Opinion by Judge Brandt.

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