MATTER OF BRANDSTAETTER, 767 F.2d 324 (7th Cir. 1985)

IN THE MATTER OF RALPH W. BRANDSTAETTER AND MARY L. BRANDSTAETTER, DEBTORS. APPEAL OF DOUGLAS F. MANN, TRUSTEE.

No. 84-2990.United States Court of Appeals, Seventh Circuit.Argued May 24, 1985.
Decided July 2, 1985.

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Mark S. Young, Borgelt, Powell, Peterson Frauen, S.C., Milwaukee, Wis., for plaintiff-appellee.

R. Arthur Ludwig, Ludwig Shilimovitz, S.C., Milwaukee, Wis., for defendant-appellant.

Appeal from the United States District Court for the Eastern District of Wisconsin.

Before CUDAHY and EASTERBROOK, Circuit Judges, and SWYGERT, Senior Circuit Judge.

CUDAHY, Circuit Judge.

[1] These proceedings arise in a bankruptcy proceeding under Chapter 7 of Title 11 of the United States Code. The trustee in bankruptcy appeals from an order of the district court disallowing the trustee’s objection to the debtors’ claim of exemption of certain personal injury claims. We affirm.

I.
[2] On September 16, 1982, Ralph and Mary Brandstaetter, the debtors-appellees, filed a voluntary petition for relief under Chapter 7, Title 11, of the United States Code. In their Schedule B-2, both debtors listed unasserted claims for personal injuries as assets. In Schedule B-4, the debtors elected exemptions allegedly pursuant to Wisconsin law and listed these personal injury claims as exempt property. On October 4, 1982, the bankruptcy court issued an order setting a meeting of creditors and fixing times for filing objections to discharge and for other purposes. This order scheduled a meeting of creditors for October 20, 1982. In the order, the court also required that any objection to the debtors’ claim of exempt property had to be filed within 15 days after the date set for the meeting of creditors — that is, by November 4, 1982.

[3] On October 20, 1982, a creditors’ hearing was held as scheduled. No objections were filed within the time limit, and the debtors were discharged on January 10, 1983.

[4] On or about March 9, 1983, the trustee filed an objection to the debtors’ claimed exemption of the personal injury claims. The debtors filed their initial brief and four supporting affidavits on April 22, 1983. On April 29, 1983, after filing his objection, the trustee filed a motion, with supporting affidavit and brief, requesting an order extending time to file an objection to the debtors’ claim of exemption of the personal injury claims. The bankruptcy court did not rule on the motion, but did not dismiss the objection, either. The trustee then filed a brief in support of his objection to the exemptions, and the debtors filed a reply brief and three additional supporting affidavits. The debtors argued that the trustee’s objection was untimely and further on the merits that the personal injury cause of action, although part of the debtors’ estate pursuant to section 541 of the Bankruptcy Code, was exempt property under the law of Wisconsin. The bankruptcy judge declined to rule on the untimeliness objection but held that the personal injury claim constituted exempt property and therefore disallowed the trustee’s objection to the exemptions, 36 B.R. 369
(Bkrtcy.D.Wis. 1984).[1]

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II.
[5] Although the bankruptcy court did not rule on the timeliness of the objection, it specifically noted on the first page of its decision that timeliness was an issue before that court.

[6] An appeal was taken to the district court, which affirmed the determination of the bankruptcy court, again declining to rule on the untimeliness argument but agreeing that the personal injury claim constituted exempt property and therefore that the trustee’s objection to the exemption should be disallowed. Both the bankruptcy judge and the district court found that since the personal injury claim had been excluded from the bankruptcy estate in Matter of Buda, 323 F.2d 748 (7th Cir. 1963), and was therefore not available to meet creditors’ claims under the former bankruptcy law, this property was also exempt under Wisconsin law under the test provided by the new Bankruptcy Code. We decline to address this issue on the merits, but we find that the trustee’s objection to the exemption was untimely and that the decision of the bankruptcy court affirmed by the district court may be affirmed on this alternative ground. Under the peculiar circumstances of this case we believe that we are authorized to address this issue and decide it. There are no outstanding questions of fact which appear to be material to a determination of timeliness and this seems to be an issue which can be decided based upon the documents which are before us.

III.
[7] Because of a historical gap, no statutory time limit for filing objections applies to this case. The case was filed on September 16, 1982. On October 4, 1982, the bankruptcy court issued an order setting October 20, 1982 as the date for the creditors’ meeting and requiring that any objection to the debtors’ claim of exempt property be filed within 15 days after that date, namely, by November 4, 1982. The trustee’s objection was filed on March 9, 1983.

[8] Bankruptcy rules in effect at the time of the enactment of the Bankruptcy Reform Act of 1978, Pub. Law No. 95-598, 92 Stat. 2549
(codified as amended in 11 U.S.C. and scattered sections of 28 U.S.C.), were to continue to apply to the extent they were not inconsistent with the new Code. In re Bartley, 33 B.R. 768
(Bankr.E.D.N.Y. 1983); In re Vigil, 23 B.R. 172 (Bankr.D.Colo. 1982). Since the Code does not establish a time limit for the filing of objections to exemptions, any time limit set by the older rules would apply if not inconsistent with the provisions of the Code. Old Rule 403 set fifteen days from the filing of a required report as the limit for filing objections. Since the Code does not require the filing of such a report, most courts that have considered the matter have decided that the old rule is in fact inconsistent with the provisions of the Code. See Matter of Dembs, 757 F.2d 777, 780 (6th Cir. 1985); In re Bartley, 33 B.R. at 770; In re Vigil, 23 B.R. at 174. But see Redmond v. Tuttle, 698 F.2d 414, 416-17 (10th Cir. 1983).

[9] A new Bankruptcy Rule 4003 has been promulgated under the Bankruptcy Code which requires that objections to claimed exemptions must be made within thirty days after the creditors’ meeting or any amendment, or they are waived. Rule

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4003, however, took effect on August 1, 1983 and was applicable only to proceedings pending on that date, except to the extent that in the opinion of the court the application would not be feasible or would work injustice. The case before us was still pending on August 1, 1983 but we do not believe that the rule should be applied retroactively to actions already taken by the parties, for they were without notice that a restrictive rule might be applied. See In re Penland, 34 B.R. 536 (Bankr.E. D.Tenn. 1983).

[10] Had either of these time limits applied, of course, the filing in this case would be untimely. Under the old Rule 906 and new Rule 9006, the bankruptcy judge could extend the time allowed on a showing of excusable neglect. Although there is sufficient evidence in the record to show that it would have been an abuse of discretion for the bankruptcy judge to find excusable neglect, we need not reach that issue. For the objection was not filed until almost two months after discharge of the debtors.[2]

[11] That is, in the instant case the debtors were discharged on January 10, 1983 and the trustee’s objection was not filed until 58 days thereafter, on March 9, 1983. Since the debtors registered a timely protest to this late filing, important considerations of policy, as well as the very provisions of the Bankruptcy Code, strongly suggest that the objection should be disallowed barring extraordinary circumstances.

[12] As the Sixth Circuit noted in a similar case, Matter of Dembs, 757 F.2d 777, 781 (1985):

A discharge in a Chapter 7 case `discharges the debtor from all debts that arose before the date of the order for relief under this chapter.’

[13] 11 U.S.C. § 727(b). Grounds for revocation of discharge are set out in section 727(d), and exceptions to discharge are set out in section 523.[3] This statutory framework provides specific limits on challenges to discharges of the debtor’s personal liability.

[14] Therefore, barring circumstances which are not present here, post-discharge efforts to reach purportedly exempt property must

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fail. See Dembs at 781. See also, Harris v. Manufacturers National Bank, 457 F.2d 631 (6th Cir.), cert. denied, 409 U.S. 885, 93 S.Ct. 118, 34 L.Ed.2d 142 (1972); Fetter v. United States, 269 F.2d 467 (6th Cir. 1959). We feel that this was the appropriate rule under the old bankruptcy law as well as under the 1978 Act.

[15] Certainly, it would be questionable policy to allow the trustee to hand back while the debtor goes forward with his personal injury claims and then subsequently object to the inclusion of these claims in exempt property. It would be inequitable to allow the debtor to invest funds in prosecution of these claims only to have them subsequently seized by the trustee. We think that the significance placed upon the act of discharge by the relevant bankruptcy legislation is sufficiently marked that the objection here must be deemed to be untimely and therefore the judgment of the district court must be AFFIRMED.