In a recent case, a federal appellate court considered whether a trustee could revoke a debtor’s discharge 15 months after the discharge was granted. When the debtor filed a Chapter 7 bankruptcy claim, he did not list his own home as an asset. Despite this, the petition continued without any other party taking notice, and he eventually received a discharge of his debts under 11 U.S.C. 727(a). After the debtor obtained the discharge, the trustee discovered the fraud that had occurred. The trustee filed an adversary proceeding against the debtor and requested that his discharge be revoked.
Under 11 U.S.C. 727(d)(1), a court can revoke a discharge if the discharge was obtained through fraud that was not discovered until after the discharge was granted. In order to seek relief under section 727(d)(1), the statute states that the request for revocation must be filed within one year after the discharge is granted. In this case, the trustee filed the adversary proceeding about 15 months after the discharge was granted, well beyond the one-year deadline. However, when the adversary proceeding was filed against the debtor, the debtor never argued that the request was filed too late.
A federal appeals court found that the one-year deadline was not an issue of “jurisdiction” but instead an issue of the statute of limitations—or the time in which the claim had to be filed. The court explained that the late filing was an affirmative defense that could be forfeited if it was not raised. In this case, the debtor did not raise the issue to the bankruptcy court, and he only raised it when the case was appealed. Thus, the issue was waived, and the issue could not be raised on appeal. In addition, the appeals court found the debtor fraudulently concealed his own home as an asset. Accordingly, the debtor’s discharge was revoked due to his fraud in concealing his home as an asset, even though the adversary proceeding was filed beyond the deadline.
In bankruptcy cases, as in other civil claims, a defendant can raise affirmative defenses to the complaint. An affirmative defense is a defense that introduces new evidence and that the defendant claims absolves the defendant of liability. The burden is on the defendant to prove an affirmative defense. Generally, affirmative defenses must be raised in the defendant’s answer or responsive pleading. Yet a court can also allow a defendant to amend an omitted affirmative defense after the answer or responsive pleading was filed. But there are some limitations. For example, the Supreme Court has held that in bankruptcy claims, a statute of limitations or “timeliness” issue cannot be raised after a case has already been decided. In this case, the debtor did not raise the timeliness issue until the case was appealed—and the debtor was the one out of time.
Are You Considering Filing for Bankruptcy?
If you are considering bankruptcy, Kruger & Schwartz can help you navigate the complicated legal process involved. As bankruptcy attorneys, we have over 30 years of experience helping clients take the proactive steps necessary to protect themselves and file a successful claim. To schedule your free initial consultation, call us toll-free at 866-366-3328 or send us an email online.
More Blog Posts:
Ex-Girlfriend’s Claim Against Debtor Seeking to Exempt Loan from Bankruptcy Fails Because Court Finds Debtor Did Not Make False Statement, Kentucky Bankruptcy Lawyers Blog, published May 8, 2017.
Recent Case Determines Debtor’s Tax “Returns” Are Not Dischargeable Due to Late Filing, Kentucky Bankruptcy Lawyers Blog, published June 16, 2017.