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IN RE LEACH

June 6, 1960

IN RE JAMES MCCLELLAN LEACH, BANKRUPT.


The opinion of the court was delivered by: John E. Miller, District Judge.

This is an action by an objecting creditor to review the discharge of the bankrupt granted by the Referee. The primary issue is whether the objecting creditor filed a sufficient specification of objection to the bankrupt's discharge during the time fixed by the Referee.

A voluntary petition was filed by the bankrupt on October 4, 1958, and the order of adjudication was made and entered on October 6, 1958. The first creditors' meeting was held on October 24, 1958, and on the same date a trustee was duly appointed and subsequently qualified.

On April 29, 1959, the objecting creditor, C. C. Gunn Distributing Company, by its attorneys filed in the office of the Clerk of the United States District Court for the Western District of Arkansas at Fort Smith an instrument styled "Petition to Recover Preference and to Prevent Discharge of Bankrupt." The original of the petition was then forwarded to the Referee at Little Rock. The petition is primarily directed towards the recovery of an alleged preference represented by a payment made by the bankrupt to the First National Bank of Fort Smith in the sum of $1,347.50. Numbered paragraph VI of the petition, unaccompanied by any further allegation, states: "VI. That the bankrupt has submitted a false financial report." The final sentence of the objecting creditor's prayer states: "Petitioner further prays that bankrupt not be discharged as a bankrupt because of the submission of false financial statement."

Counsel for the objecting creditor did not serve a copy of this petition upon the bankrupt or upon his attorney.

On May 1, 1959, an order was made by the Referee fixing the time for filing of objections to the discharge of the bankrupt. This order set the final date for filing such objections as June 1, 1959. No further objections were filed during this period, and on July 6, 1959, an order was made and entered discharging the bankrupt as provided by law.

In December 1959 an oral objection to the discharge was made by counsel for the objecting creditor, and on December 16, 1959, the Referee entered the following order revoking the order of discharge:

"At Little Rock, Arkansas, this 16th day of December, 1959.

    "Ordered that the discharge of the bankrupt issued on July 6,
  1959 be, and the same hereby is, revoked until such time as
  the court can have a hearing on said objections to the
  discharge."

Apparently this order was entered without giving notice to the bankrupt or his attorney. It was upon receipt of this order that the bankrupt first became aware of the filing of the objection by the objecting creditor.

On December 24, 1959, the bankrupt moved to dismiss the objecting creditor's petition and to reinstate the discharge of the bankrupt. In this motion the bankrupt states (1) that the petition does not state facts which constitute grounds for denial of discharge, (2) that he was not served with a copy of said petition or otherwise notified of the filing of the petition until December 1959, (3) that the petition was not filed within the time limited by the court for filing objections, and (4) denied all allegations of the petition.

On January 13, 1960, the Referee ordered that a hearing be held on February 15, 1960, on the specification of objection to discharge. This hearing was subsequently postponed until March 18, 1960.

On February 19, 1960, the objecting creditor filed amended specifications of objections to discharge alleging (1) the bankrupt has committed an offense under Sec. 152, Title 18 U.S.C.A., punishable by imprisonment, in that, in Schedule A-3, the bankrupt listed the McCann Photo Company as an unsecured creditor, and then, in Schedule B-3, McCann was listed under the heading "Choses in Action"; (2) that the bankrupt delivered a written financial statement on April 30, 1958, showing himself to be the owner of real property of a value of $21,495.48, and that, relying upon such statement, the objecting creditor extended credit to the bankrupt in the sum of $5,000, but that in reality the real property was held by the bankrupt only as a tenant by the entirety with his wife; and that (3) the bankrupt delivered to the objecting creditor on June 30, 1958, a written financial statement showing as an asset photographic equipment of the value of $6,497.82, whereas the said photographic equipment had been conveyed by bill of sale to another on March 29, 1958, but that relying upon said financial statement of June 30, 1958, the objecting creditor extended or renewed credit to the bankrupt in a sum greater than $10,000.

The file does not indicate that the objecting creditor filed a motion with the Referee for permission to amend his specification of objection, or that the Referee entered an order permitting the objecting creditor to do so. However, the first paragraph of the amended ...


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