UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

CORBIN DIVISION

IN RE:

PHILLIP CLINT HUTSON CASE NO. 90-60243

SHERRY REEVES HUTSON

This matter is before the Court on the motion of Betty Sue McKay ("McKay") filed herein on June 1, 1992 to annul the stay of Bankruptcy Code §362 and deem the injunction of Bankruptcy Code §524 inapplicable.

The facts herein do not appear to be in dispute. On November 22, 1985 McKay filed an Equal Employment Opportunity Commission ("EEOC") complaint against Southeastern Kentucky Rehabilitation Industries, Inc. alleging that Phillip Clint Hutson (herein "debtor"), an employee of Southeastern, had sexually harassed her. Apparently EEOC took no action to prosecute the complaint. Almost five years later, on April 13, 1990, debtor filed his bankruptcy petition under Chapter 7 and did not list McKay as a creditor. Debtor did not inform his counsel of the possible existence of the McKay claim at that time because of the long lapse of the matter, apparently thinking the matter was long since finished.

A meeting of creditors was scheduled for July 5, 1990 and September 3, 1990 was set as the deadline for filing of any complaint objecting to the dischargeability of any debt pursuant to Bankruptcy Code §523(a)(2), (4), or (6). See Bankruptcy Code §523(c) and Bankruptcy Rule 4007(c). Subsequently, on or about October 18, 1990, debtor was served with a summons and a copy of McKay's complaint which had been filed in the United States District Court for the Eastern District of Kentucky at London on October 9, 1990. Debtor promptly informed his bankruptcy counsel who, likewise acting promptly, filed an amendment in his pending bankruptcy proceeding on November 7, 1990. There is no indication that McKay was aware of the filing of the bankruptcy by debtor until after the filing of her complaint in the District Court. An order discharging debtor of all of his dischargeable debts was entered by this Court on January 24, 1991.

In the District Court proceeding, debtor moved to dismiss the complaint pursuant to the discharge in the bankruptcy proceeding. McKay responded that her claim was not dischargeable under §523(a)(6) and that §523(a)(3) provides that claims not scheduled in time for a timely filing of a proof of claim and a timely request to determine the dischargeability of the debt are not discharged. The District Court ruled that any determination of dischargeability pursuant to §523(a)(6) must be made by the Bankruptcy Court and gave McKay 30 days to seek appropriate relief in the Bankruptcy Court. Such relief was timely sought in the form of the motion now before this Court.

The debtor contends that McKay erred by not seeking an extension of time for the filing of a complaint to determine dischargeability in this Court immediately upon becoming aware of the bankruptcy proceeding (despite the fact that a reading of §523(c) and Bankruptcy Rule 4007(c) seem to provide that the time to seek such an extension had expired) and that, since McKay did not seek such relief, but chose to pursue her claim in the District Court, her claim is now barred. McKay responds that the language of those sections, coupled with §523(a)(3), result in her claim not being discharged in the debtor's bankruptcy case and that she wishes to proceed to prosecute that claim in the District Court and herein seeks appropriate relief to do so.

Bankruptcy Code §523(3) is unequivocal that a determination of non-dischargeability for claims under §523(a)(2), (4), or (6) must be made by the Bankruptcy Court. Likewise Bankruptcy Rule 4007(c) seems unequivocal that any such complaint to determine dischargeability must be filed within the specified period and any motion to extend the time to object to dischargeability must "...be made before the time has expired." When read in conjunction with the foregoing, §523(a)(3) also seems to say that, for such claims, since the creditor could not file a claim and participate in the proceedings through no fault of her own, the debt due that creditor is not discharged in the bankruptcy proceeding.

The position that any action to address dischargeability under §523(a)(2), (4), or (6) must be taken within the time provided by Bankruptcy Rule 4007(c) or an extension as provided therein (based on a motion to extend filed before the time expires) has been adopted by many courts. In re Neese, 87 B.R. 609 (9th Cir. BAP 1988), In re Fauchier, (9th Cir. BAP 1987), In re Kirsch, 65 B.R. 297 (Bankr.N.D. Ill. 1986), In re Summit Corp., 109 B.R. 534 (D.Mass. 1990), In re Remund, 109 B.R. 492 (Bankr. M.D.Fla. 1990), In re Barnes, 96 B.R. 833 (Bankr. N.D.Ill. 1989), In re Ezell, 116 B.R. 556 (Bankr. N.D.Ohio 1990).

However clear the language might seem, there is another school of thought as to whether the deadline established by Bankruptcy Rule 4007(c) is the ultimate deadline for filing such actions. This line of cases allows the filing of such actions after the deadline has expired where there is no showing of fault on the part of the creditor and, in particular, where the creditor was not notified of the proceeding or of the bar date. Matter of Peloso, 107 B.R. 31 (Bankr. S.D.N.Y. 1989), In re Main, 111 B.R. 535 (Bankr. W.D.Pa. 1990), In re Eliscu, 85 B.R. 480 (Bankr. N.D.Ill. 1988).

While the Sixth Circuit Court of Appeals does not appear to have ruled on this matter, dicta from a case on a related matter may offer some guidance. In In re Soult, 894 F.2d 815 (6th Cir. 1990), the issue before the Court was the reopening of a case pursuant to Bankruptcy Code Section 350. While the present issue was not before the Court in that case, the Court cited with approval two decisions of Judge Perlman, Chief Bankruptcy Judge for the Southern District of Ohio: In re Brown 60 B.R.983 (Bankr. S.D.Ohio 1986) and In re Daniels, 51 B.R. 142 (Bankr. S.D.Ohio 1985). In those two cases Judge Perlman permitted the reopening of the cases over objection and, while it would appear that the time for filing any action to contest dischargeability under §523(a)(2), (4) or (6) had long since expired, provided that the omitted creditor would have 30 days after reopening within which to object to the dischargeability of the debt if it could do so. Admittedly, the facts of those two cases do not recite that either objecting creditor was alleging nondischargeability under § 523(a)(2), (4) or (6) but the language of each seems to invite any legitimate dischargeability complaint which the creditor can file. A dischargeability complaint under any other subsection of § 523(a) would not necessarily require the reopening of a period to file such complaint in the bankruptcy court since there is no specified time limit and other courts have concurrent jurisdiction to determine the dischargeability of debts under those other subsections. Bankruptcy Code §523(c) and Bankruptcy Rule 4007. The Circuit Court specifically referred to the opportunity of the creditor to "...contest the dischargeability...." if the creditor chose to do that.

The creditor in the within proceeding, through no fault of her own has not had an opportunity to object to the dischargeability of the debt she claims due from the debtor. Under the rationale of the Soult case and the opinion of the District Court in this matter, it appears that she should have that opportunity. Accordingly, by separate order to be entered herein, the motions of McKay will be overruled but she will be given 30 days from the date of such order within which to contest the dischargeability of the debt alleged.

Dated this ______ day of September, 1992.

By the Court:

_________________________

JUDGE

Copies to:

Marcia Smith, Esq.

Tracey N. Wise, Esq.

United States Trustee

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