California Court Discusses Amendments of Bankruptcy Adversary Proceedings

While bankruptcy grants many people relief from overwhelming debts, not all bankruptcy proceedings are resolved in a straightforward manner. Instead, in some cases, one or more parties will file an adversary proceeding objecting to the discharge of the debtor’s debts. While there are pleading and procedural rules that parties filing adversary proceedings must comply with, they are granting substantial leeway with regard to amendments. The right to amend an adversary complaint was the topic of a recent ruling issued in a California bankruptcy case. If you are interested in pursuing debt relief through bankruptcy, it is wise to contact a trusted California bankruptcy lawyer to assess your options.

The History of the Case

It is reported that the debtors filed a Chapter 7 bankruptcy petition. Subsequently, one of their creditors filed an adversarial complaint. The allegations in the adversarial complaint were not offered in the court’s opinion; however, the creditor later sought leave to amend the complaint. The bankruptcy court issued an order granting leave to amend, and the debtors appealed. On appeal, the bankruptcy appellate panel (BAP) affirmed the bankruptcy court ruling. The debtors then appealed to the United States Court of Appeals, Ninth Circuit.

Amendments of Bankruptcy Adversary Proceedings

The Court of Appeals explained that it reviews decisions de novo, using the same standard of review that the BAP applied to the ruling issued by the bankruptcy court. Similarly, the bankruptcy court’s conclusions of law are reviewed de novo, and its factual findings are examined for clear error.

The Court of Appeals explained that whether an amendment of an adversarial complaint relates back to the date the original pleading was filed constitutes a legal question that the courts review de novo as well. The Court elaborated that Federal Rule of Civil Procedure 15 regarding supplemental and amended proceedings applies in bankruptcy adversary matters and that leave to amend should be granted on an extremely liberal basis. Further, the Court noted that the chance to amend is particularly important in bankruptcy adversary cases due to the short time frame in which complaints have to be filed.

Bankruptcy courts employ four factors to determine whether to grant leave to amend: undue delay, bad faith, prejudice to the opposing party, and futility of amendment. In the subject case, the debtors argued that the amendment was futile because it did not relate back to the original complaint and therefore was untimely. The Court disagreed, stating that the amendments arose out of the same conduct asserted in the original pleading. Thus, it affirmed the BAP ruling.

Meet with an Attorney Experienced at Handling Bankruptcy Matters

People who struggle to keep up with their debts may be able to obtain relief through bankruptcy, but simply because a person files a bankruptcy petition does not necessarily mean they will no longer face any challenges from creditors. If you have inquiries regarding bankruptcy, it is advisable to confer with an attorney experienced in helping people seek reprieve from their debt obligations. Matthew D. Roy is an experienced California bankruptcy lawyer who can advise you of your rights and help you to pursue the best legal result possible under the facts of your case. You can contact Mr. Roy via the form online or by calling (916) 361-6028 to set up a meeting.

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