Beware the filing of untimely objections to confirmation of plan in chapter 13 cases! The consequences vary sharply among bankruptcy courts for a creditor who files an objection to confirmation before the entry of a confirmation order, but after the deadline set by local bankruptcy court rules. The perceived gap between these locally established deadlines for objections to confirmation and Bankruptcy Rule 3015(f) gives rise to uncertainty about just how final local rule deadlines really are. In fact, some even question the validity of such local time limits. See 9 Collier on Bankruptcy, ¶3015.02, p. 3015-5 n. 3 (rev. 15th ed. 2003). Given the conflicting opinions among bankruptcy courts, clarity is needed at the appellate level regarding the firmness of locally established deadlines in relation to Bankruptcy Rule 3015(f). Alternatively, Bankruptcy Rule 3015(f) should be amended to clarify its relationship with local rule deadlines and to strike a better balance between the competing needs for finality and flexibility.

The Rule

An analysis of this area begins with Bankruptcy Rule 3015(f), which provides, in part:

An objection to confirmation of a plan shall be filed and served on the debtor, the trustee and any other entity designated by the court ...before confirmation of the plan. An objection to confirmation is governed by Rule 9014. If no objection is timely filed, the court may determine that the plan has been proposed in good faith and not by any means forbidden by law without receiving evidence on such issues.

Many local rules provide specific time limits for the filing of objections based on the date of the §341(a) meeting of creditors² or the confirmation hearing.³ Yet the existence of these deadlines creates the possibility that objections can be untimely under local rules, but still arguably timely under Bankruptcy Rule 3015(f) if properly filed prior to entry of a confirmation order.

This creates the possibility of a scenario as follows:The secured creditor receives notice that an individual holding its collateral has filed for bankruptcy, but the debtor's plan severely (so the creditor believes) undervalues the collateral. The creditor naturally files an objection to the plan. Regrettably for the creditor, for some reason unrelated to a lack of notice, its objection is filed late under the bankruptcy court's local rules. At the confirmation hearing, the debtor contends that the objection should be overruled as untimely. However, the creditor argues that even if untimely under local rules, its objection was filed prior to the entry of a confirmation order and is thus timely under Bankruptcy Rule 3015(f). Unfortunately for consistency's sake, how a bankruptcy court would rule under these circumstances depends to a large degree on which bankruptcy court is hearing the case.

Competing Camps

When confronted with this situation, courts have fallen into two broad camps: "late is late" and "merits matter." Under the "late is late" view, bankruptcy courts have found that local rules setting deadlines for objections to confirmation are firm and creditors should be held to them, whatever the underlying rationale of their objections. In other words, the untimeliness alone provides a sufficient basis to overrule the objection and preclude consideration of its merits.

In his treatise on chapter 13 bankruptcy, Judge Keith M. Lundin's discussion of this matter demonstrates that he belongs to the "late is late" school. He criticizes courts that look to the merits of the untimely objections and entertain such objections when they are "not tangential or trivial." Lundin, Keith M., Chapter 13 Bankruptcy, 3d Ed., §220.1, 220-6-7 (2000 & Supp. 2002). Judge Lundin argues that entertaining untimely objections under those circumstances promotes anarchy in the chapter 13 confirmation process because debtors and trustees can never safely rely on the deadline "if the bankruptcy judge can randomly...pick up the fallen mantle." Id. at 220-6.

Bankruptcy courts adhering to the "late is late" view also focus on the absurd result that could occur if Bankruptcy Rule 3015(f) is interpreted to mean that any objection may be considered so long as it is filed prior to confirmation: "[C]arried to extremes, the confirmation process could go on ad infinitum—as soon as one objection is resolved, but before the court actually signs the confirmation order, another objection could be filed, and so forth." In re Duncan, 245 B.R. 538, 541 (Bankr. E.D. Tenn. 2000); see, also, In re Dorn, 295 B.R. 872, 875-76 (Bankr. E.D. Ark. 2003) (quoting Duncan); In re Hager, No. 4:03-BK-14025 E, 2003 WL 22658194, at *3 (Bankr. E.D. Ark. Oct. 3, 2003) (same). For these courts, Bankruptcy Rule 3015(f)'s reference to objections "timely filed" demonstrates their ability to institute deadlines establishing what exactly "timely" means. See Dorn, 295 B.R. at 875; In re Gaona, 290 B.R. 381, 385-86 (Bankr. S.D. Cal. 2003); Duncan, 245 B.R. at 541. In fact, the court in Dorn found that it had the power to establish such deadlines, despite the creditor's argument that the specific prohibition in Bankruptcy Rule 9006⁴ on reducing the time for taking action under Bankruptcy Rule 3015 renders the local deadline invalid. Dorn, 295 B.R. at 875. The Dorn court reasoned that Bankruptcy Rules 9006 and 3015(f), when read in conjunction, contemplated that the court "can and will set some type of deadline for objections," but that once the time period for filing objections was established by the court's local rules, that period could not then be reduced pursuant to Bankruptcy Rule 9006(c)(2). Id.

Courts that strictly enforce these local rule deadlines have even overruled untimely objections despite allegations of debtor misconduct. See Gaona, 290 B.R. at 386 (denying objection as untimely under local rule, despite allegations that debtor hid assets and failed to report income); In re Harris, 275 B.R. 850 (Bankr. S.D. Ohio 2002) (denying objection as untimely under 30-day deadline established in clerk's notice, but noting that, in spite of initial creditor allegation of inadequate debtor disclosures, debtor apparently disclosed required information to trustee); In re Carbone, 254 B.R. 1 (Bankr. D. Mass. 2000) (overruling objection as untimely under local rule despite creditor's allegations, inter alia, of debtor bad faith and fraudulent transfer of assets).

However, when evaluating the "late is late" camp's position, it is important to consider what happens if a bankruptcy court does not establish what it means by a "timely" objection to confirmation within its local rules.⁵ In that case, the deadline to file objections would simply be "prior to confirmation" per the language of Bankruptcy Rule 3015(f). That these courts apparently function without anarchy in the confirmation process is evidence that the "late is late" camp's concerns could be exaggerated.

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The establishment of deadlines creates countervailing pressures on courts—on the one hand, pressure for the deadlines' strict enforcement in the interest of finality, and on the other, pressure for flexibility in their application in the interests of equity.

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In fact, although for different reasons, other bankruptcy courts have disagreed with the "late is late" camp's logic regarding untimely objections to confirmation. These courts have reasoned that the underlying merits of an untimely objection matter in determining whether it should be heard. They have generally found that the "interests of justice" require setting aside local rules' deadlines when the objection has merit, for to do otherwise would mean that creditors with valid objections would be disproportionately penalized or that plans potentially in derogation of the Code would be confirmed. See In re Cook, 253 B.R. 249, 250-51 (Bankr. E.D. Ark. 2000) (entertaining late-filed meritorious objection to confirmation "in the interests of justice and consistency" because, inter alia, of a "morass of confusion" that would be caused if court were to deny objection on procedural grounds but grant pending motion for relief from stay on the merits); Lundin, §220.1, at 220-6 n.15 (citing Kahn v. Dastejerdi (In re Dastejerdi)), Nos. 01-11725-SSM, 01-1134, 2001 WL 1168178, at *5 (Bankr. E.D. Va. Sept. 21, 2001) (finding that the court has the discretion to hear an objection that is untimely under local rules if it is raised prior to entry of confirmation order, especially "where the issues raised by the objection are not tangential or trivial but rather go to the integrity of the chapter 13 filing."); In re Bayless, 264 B.R. 719, 720 (Bankr. W.D. Okla. 1999) (finding that the court has the discretion, when faced with untimely objection to confirmation, to waive its own local court rules in the interests of justice); In re Amos, 259 B.R. 317, 319 (Bankr. C.D. Ill. 2001) (finding that, despite untimely objection according to deadline contained in the hearing notice, "where the objector raises an argument that the debtors' plan essentially undermines a provision of the Bankruptcy Code, the court may and will consider the merits of such an objection.").

In a recent case, one bankruptcy court has incorporated aspects of both points of view in its reasoning. In In re Ives, the court was confronted with a creditor's untimely objection under local rules, but prior to plan confirmation. In re Ives, 289 B.R. 726, 727 (Bankr. D. Ariz. 2003). The objection was based on the fact that the plan contained a partial stripdown of a home mortgage in violation of §1322(b)(2). Id. The court concluded that a chapter 13 plan provision providing for the modification of a partially secured primary residence mortgage is improper regardless of the untimeliness of the creditor's objection, provided the objection occurs prior to confirmation. Id. at 728, 29. The court found that it has a responsibility "to ensure plan compliance with the Bankruptcy Code even in the absence of an objection" and thus could "address plan validity regardless of the creditor's objection, timely or not." Id. (citations omitted); see, also, Dastejerdi, at *5 (citations omitted) ("[T]he lack of an objection to confirmation does not compel the court to confirm a chapter 13 plan. Quite the contrary, as even in the absence of an objection, the court has an independent duty to ensure that a chapter 13 plan meets the statutory requirements for confirmation."). Since the plan contained a provision in direct violation of the Bankruptcy Code, the plan was unconfirmable under §1325(a)(1) regardless of the objection. Ives, 289 B.R. at 729. The Ives court also noted, however, that some confirmation requirements are expressly conditioned upon objection, implying that if a creditor fails to object in a timely manner in those instances, the plan would be confirmed. See Id. In the Ives court, it appears that to the extent any untimely objection is considered, it is because of its duty under §1325(a) to ensure plan compliance with the Code. Presumably, an untimely objection that did not call into question the validity of the debtor's plan would be overruled.

Fifth Circuit: Look at the Merits

In another situation involving deadlines contained in a bankruptcy court's local rules, the Fifth Circuit Court of Appeals reversed a district court's affirmance of a bankruptcy court's order of surcharge. In re Grimland Inc., 243 F.3d 228 (5th Cir. 2001). In that case, a creditor was served with a surcharge motion, followed several days later by a supplemental surcharge motion. Id. at 230. The creditor failed to object to the first surcharge motion within the 20-day deadline specified by the local bankruptcy rule. Id. at 230. Therefore, the bankruptcy court entered an order granting the first motion. Id. One day later, the creditor filed an objection to the first motion, which the bankruptcy court treated as a response to the second motion. Id. The bankruptcy court granted the second motion, which "when combined with the first surcharge motion, had the effect of completely stripping [the creditor] of its lien." Id. at 231.

Though the bankruptcy court noted that this result was "clearly contrary to Fifth Circuit precedent," it found that the creditor had ample time to object, but failed to do so, and ultimately denied the creditor's request for reconsideration of its rulings. Id. at 230-231. In reversing the district court's affirmance, the Fifth Circuit reasoned that in light of the loss of value in contravention of the Code, "the bankruptcy court should have considered the totality of the circumstances, and not just the purported technical delay in responding to the first motion." Id. at 234. Although noting that a court rarely abuses its discretion by strictly holding parties to local rule deadlines, the Fifth Circuit found this situation constituted such a "rare" case. Id. Based on this opinion, it appears that the Fifth Circuit would require consideration of an objection to confirmation on its merits, independent of its timeliness under local rules, at least when faced with a situation in which the objection indicates that an element of the plan may be in derogation of the Bankruptcy Code, as in Ives.

Conclusion: Need for Clarification

The establishment of deadlines creates countervailing pressures on courts—on the one hand, pressure for the deadlines' strict enforcement in the interest of finality, and on the other, pressure for flexibility in their application in the interests of equity. Bankruptcy courts' varying treatment of untimely objections to confirmation reflects this tension. Both points of view have their strengths and flaws: The "late is late" camp places great weight on their local rules, emphasizing certainty and finality. However, adherents to this view arguably elevate local rule deadlines to a higher status than appellate courts may countenance, as demonstrated by a case such as Grimland. This view could also lead to the confirmation of plans that are in violation of the Bankruptcy Code, simply because of an untimely objection under local rules. Yet to entertain untimely objections solely when they have merit undoubtedly reduces deadlines in local rules to little more than suggestions. Although Bankruptcy Rule 3015(f) was only adopted in 1993, it seems to have muddled the status of local deadlines to the filing of objections to confirmation.⁶ Given the responses of bankruptcy courts to this rule, it is evident that Bankruptcy Rule 3015(f) should be revisited. Nevertheless, until a change is made or appellate courts render a clear judgment as to which side should prevail, bankruptcy courts around the nation will continue to balance the equities in different ways, thus creating the very confusion in the confirmation process that such rules were intended to preclude.

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Footnotes

¹ Judicial Law Clerk, U.S. Bankruptcy Court for the Eastern and Western Districts of Arkansas. J.D., cum laude, 1997, The Catholic University of America, Columbus School of Law; B.S.F.S., cum laude, 1994, Georgetown University. The opinions and views expressed in this article are solely those of the author and should not be attributed to the U.S. Bankruptcy Court for the Eastern and Western Districts of Arkansas. Return to article

² See, e.g., LBR S.D. Cal 3015-5 (objection to confirmation must be filed by the next court date following the date the §341(a) meeting is concluded); E.D. Tenn. LBR 3015-3 ("[O]bjections to confirmation of chapter 13 plans shall be filed prior to the conclusion of the meeting of creditors held pursuant to 11 U.S.C. §341(a). However, the chapter 13 trustee and any creditor attending and participating in the meeting of creditors will be allowed until the close of business on the third business day following the conclusion of the meeting within which to file an objection. An objection filed beyond the dates fixed in this rule will not be considered unless the court, for cause, extends the time."); D.C. LBR 3015-1(c) ("The deadline for objecting to the original chapter 13 plan, unless the court approves notice of a different deadline, is the later of (1) 15 days after the date first set for the meeting of creditors and (2) 40 days after the date the plan is mailed to the creditor."); S.D. Fla. LR 3015-3(B)(1) ("Except for objections to confirmation based on valuation of collateral in the plan, objections to confirmation of the plan must be raised at or before the §341 meeting, and any written objection must be filed and served on the standing chapter 13 trustee at or before the meeting, or the objection is deemed waived."); D. Mass. MLBR Appendix 1, 13-8(a) (objections to confirmation must be filed "no later than the later of (i) 30 days after the first date set for the §341(a) meeting or (ii) 30 days after service of a modified plan, unless otherwise ordered by the court."); E.D and W.D. Ark. General Order 20 (objection must be filed and served on or before the 10th day after conclusion of §341(a) meeting); C.D. Cal. LBR 3015-(g) (objections to confirmation of the plan must be filed not less than 8 days before the §341(a) meeting of creditors..."[h]owever, the chapter 13 trustee may accept an oral objection to confirmation of the plan if said objection is made at the §341(a) meeting of creditors. Failure to file either a written objection on a timely basis or to appear at the §341(a) meeting to present the basis for the objection will be deemed a waiver of the objection."). Return to article

³ See, e.g., E.D. Pa. LBR 3015-1(c) (objection must be filed and served no later than five days before date of hearing on confirmation of the plan, unless otherwise ordered by the court); E.D. Tex. LBR 3015(b)(1) (objections to confirmation must be filed no later than seven days prior to confirmation, "and untimely objections may not be considered by the court."); N.D. Tex. LBR 3015.3 ("unless the court orders otherwise, an objection to confirmation shall be filed no later than four days prior to the date set for hearing on confirmation of the plan."). Return to article

⁴ Bankruptcy Rule 9006 addresses the calculation of time periods and the court's power to enlarge or reduce certain time periods for taking action. Bankruptcy Rule 9006(c)(2) states "[t]he court may not reduce the time for taking action pursuant to [Bankruptcy Rule 3015]." Return to article

⁵ At least three bankruptcy courts (Bankr. M.D. Fla., Bankr. N.D. Ga., Bankr. S.D. Ga.) apparently do not have a local rule or general order specifically establishing a deadline for filing objections to confirmation in chapter 13 cases. Return to article

⁶ See Duncan, 245 B.R. at 542 (interpreting 1993 amendment changing objection time requirement from "within a time set by the court" in Bankruptcy Rule 3020(b) to "before confirmation of plan" in Bankruptcy Rule 3015(f) and reasoning that this change was a recognition by the Supreme Court that objections filed after confirmation are generally ineffectual); but, see In re Ryan, 160 B.R. 494, 496-97 (Bankr. N.D.N.Y. 1993) (interpreting change to Bankruptcy Rule 3015(f)'s language to "before confirmation of plan" to mean that court may consider any objection so long as it is raised prior to confirmation). Return to article