Summary of a Recent
Judicial
Development in
Bankruptcy
Extension for Service of Process Was Proper Because
Creditor Consented to Jurisdiction
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Swanson, 343 B.R. 678 (Bankr. D. Kan. 2006), the United States Bankruptcy Court for the District of Kansas held that the debtor's dischargeability complaint was ripe for determination, and granted the debtor a 30 day extension for service of process on the Internal Revenue Service.
Background
Debtor filed his Chapter 12 petition in October 2005, and his principal creditor was the IRS. Id. at 679. In February 2006, Debtor brought this action, asking the court to determine that his debts to the IRS were dischargeable pursuant to 11 U.S.C.A. § 507(a)(8)(A)(i), and the IRS objected and moved to dismiss the case. Id. Debtor had mailed the summons and complaint directly to the United States Trustee's office and to the IRS at an address very similar to the address listed in the IRS's proof of claim it had filed, and the IRS claimed that the service was invalId. Id. at 680. The IRS also contended that the court had no standing to hear Debtor's dischargeability complaint because it was not ripe. Id.
Arguments
The IRS argued Debtor's complaint was premature because he had not yet obtained confirmation of a plan and was not yet entitled to a discharge under § 1228. Id. at 680. It also contended that the service of process was improper because Debtor had not served his complaint on the United States Attorney for the District of Kansas or on the Attorney General of the United States in Washington, D.C., as required by Federal Rule of Bankruptcy Procedure 7004 and Civil Rule 4. Id.
The Debtor argued that his dischargeability complaint was ripe for determination. Id.
Analysis and Holdings
The court distinguished this case from those cited by the IRS in their ripeness challenge by noting that the facts that controlled whether Debtor's obligations to the IRS were dischargeable had already occurred, and no speculation about future circumstances were needed. Id. at 681. The court also pointed out that the taxes Debtor owed would be treated the same under § 1228 no matter which kind of discharge the Debtor ultimately qualified for. Id. at 682. The court reasoned that the IRS's position would require Debtor to wait to learn whether the tax claim would be discharged, while an early resolution of the dischargeability question would allow Debtor to modify his plan to propose paying the claim and thus avoid additional interest and penalties, and for those reasons determined that his complaint was ripe. Id. As for the IRS's complaint that service of process was improper, the court concluded the IRS had consented to the court's jurisdiction by filing their motion to dismiss, and Debtor directed his attempts to serve the agency to an address very similar to the notice address listed on the proof of claim. Id. at 684. Thus the court denied the IRS's motion to dismiss and gave Debtor 30 days to mail copies of the summons and complaint to the correct offices. Id. at 685.
The case was decided on May 15, 2006.