589 B.R. 444
1st Cir. BAP2018Background
- Debtor filed Chapter 13 in Apr 2015; Banco Cooperativo de Puerto Rico (BCPR) held an unsecured claim based on a note and unrecorded mortgage on the Debtor's residence.
- Because a prior Chapter 13 had been dismissed, the automatic stay terminated by operation of § 362(c)(3); BCPR obtained "comfort orders" under § 362(j) confirming the stay had ended and stating BCPR could pursue state-law remedies.
- The case converted to Chapter 7; with discharge imminent, BCPR sued in an adversary proceeding seeking (a) clarification that the Comfort Orders permitted it to obtain a lien in state court and have its claim declared secured, and (b) delay or qualification of the discharge until its exemption and lien issues were resolved.
- BCPR did not allege any § 727(a) grounds to deny discharge and repeatedly conceded it did not oppose entry of a discharge in principle; instead it sought postponement or qualification of the discharge to preserve its ability to perfect a lien.
- The bankruptcy court dismissed BCPR’s complaint under Rule 12(b)(6) for failure to state a plausible claim and then entered the Chapter 7 discharge; BCPR appealed both the dismissal and the discharge order.
- The BAP held BCPR waived appeal of any effort to deny discharge (lack of jurisdiction) and affirmed dismissal as to the alternative requests to delay or limit the discharge because BCPR failed to state plausible legal grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether creditor stated a plausible claim to deny discharge | BCPR (plaintiff) sought relief under equitable powers and Comfort Orders to avoid effect of discharge | Debtor argued BCPR asserted no § 727(a) grounds and effectively conceded it did not oppose discharge | Waived: BCPR conceded it did not seek denial of discharge; appeal on that theory dismissed for lack of jurisdiction |
| Whether creditor could obtain an extension or postponement of the time to object/delay entry of discharge | BCPR argued court could use § 105(a) (and Comfort Orders) to delay discharge so creditor could perfect lien | Debtor argued Bankruptcy Rule 4004 and § 4004(c) limit postponement; creditor cannot obtain delay absent enumerated exceptions or timely Rule 4004(b) motion | Rejected: No statutory basis; creditor failed to seek Rule 4004(b) extension and § 105(a) cannot be used to circumvent Rule 4004 limits |
| Whether § 362(c)(3)(A) or § 362(j) Comfort Orders gave creditor substantive rights to perfect a lien post-bankruptcy | BCPR contended Comfort Orders and stay termination preserved its ability to obtain a lien and thus justified delaying/qualifying discharge | Debtor and court: Comfort Orders merely recognize stay termination; they do not create or enhance substantive lien rights | Rejected: Comfort Orders do not confer substantive lien rights; § 105(a) cannot be invoked to create such rights or alter discharge effects |
| Whether court could qualify/limit the scope of the discharge injunction to allow state court lien perfection | BCPR asked court to clarify discharge order to permit it to pursue lien and later have claim declared secured | Debtor argued Code and Rules govern discharge effects; creditor must assert specific statutory exceptions (e.g., § 523) to avoid discharge protection | Rejected: No cognizable legal theory alleged to except or limit discharge; qualifying discharge in that way would conflict with Code and Rule 4004(c) |
Key Cases Cited
- Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193 (9th Cir.) (a discharge order is a final judgment)
- Kontrick v. Ryan, 540 U.S. 443 (U.S.) (procedural deadlines for objections to discharge and related rule interplay)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (pleading standard: plausibility requirement under Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S.) (establishing the plausibility standard for pleadings)
- Jamo v. Katahdin Fed. Credit Union, 283 F.3d 392 (1st Cir.) (limits on equitable authority under § 105)
- In re Oak Knoll Assocs., L.P., 835 F.3d 24 (1st Cir.) (§ 105 cannot be used as a roving writ to alter substantive Code rights)
- Ameriquest Mortg. Co. v. Nosek (In re Nosek), 544 F.3d 34 (1st Cir.) (§ 105(a) cannot be used where it would be inconsistent with Code provisions)