London, Edward H

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Boston College Law ReviewVolume 4 | Issue 3 Article 194-1-1963Bankruptcy—Chapter XIII—Confirmation ofExtension Plan Within Six Years of PreviousPlan.—In re HolmesEdward H. LondonFollow this and additional works at: http://lawdigitalcommons.bc.edu/bclrPart of the Bankruptcy Law CommonsThis Casenotes is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been acceptedfor inclusion in Boston College Law Review by an authorized administrator of Digital Commons @ Boston College Law School. For more information,please contact nick.szydlowski@bc.edu.Recommended CitationEdward H. London, Bankruptcy—Chapter XIII—Confirmation of Extension Plan Within Six Years ofPrevious Plan.—In re Holmes, 4 B.C.L. Rev. 745 (1963), http://lawdigitalcommons.bc.edu/bclr/vol4/iss3/19CASE NOTESthe applicable statute of limitations, two factors must be present:(1) Fraudulent concealment; (2) nondiscovery, that is, absence offacts that would put a party upon notice of the cause of action.Mere ignorance of the injury complained of, or of the facts consti-tuting such injury, will not prevent the running of the statute asThe plaintiff would be required to allege fraudulent concealment in thepleadings and "must prove both affirmative acts of concealment on the partof defendant and reasonable grounds for his own failure to penetrate the de-ception."24 This basic procedure plus additional equitable rules on bothsides should result in a workable standard. In no event should a result bereached whereby the wrongdoer is made secure from liability by fraudulentlyconcealing the cause of action. It is obvious that many companies seem tothink they have found a "loophole" in section 4B. This "loophole" has beenfilled by the federal courts in previous cases, 35 and the present litigation doesnot reveal any compelling reasons which prevent the application of thefraudulent concealment doctrine to this supposed gap in the law. On theother hand, there remains a possible gap in the law which, as previouslystated, appears not to be covered by Kansas City. In the self-concealingconspiracy there may be no affirmative conduct by the wrongdoer, in whichcase the exception to the running of the statute may not be applied. Whetherthis gap will be closed is left to future case law.EDWARD BOGRADBankruptcy—Chapter XIII—Confirmation of Extension Plan withinSix Years of Previous Plan.—In re Holmes.'—In a Chapter XIII proceed-ing the debtor sought confirmation of an extension plan which would givehim more time to repay his debts. The district court affirmed an order ofthe Referee in Bankruptcy dismissing the debtor's petition on the groundthat section 14c(5) of Chapter 111 2 taken together with section 656a(3) ofChapter X1113 operated as a bar to confirmation of an extension plan where33 Id. at 752.34 Wiprud, Antitrust Treble Damage Suits Against Electrical Manufacturers: TheStatute of Limitations and Other Hurdles, 57 Nw. U.L. Rev. 29, 50 (1962).35 Bailey v. Glover, supra note 10, and cases cited, supra note 9.1 309 F.2d 748 (10th Cir, 1962).2 Bankruptcy Act § 14c, 52 Stat, 850 (1938), as amended, 11 U.S.C. § 32c (1958)provides:The court shall grant the discharge unless satisfied that the bankrupt has-. . . (5) in a proceeding under this title commenced within six years priorto the date of the filing of the petition in bankruptcy . .. been granted adischarge, or had a composition or an arrangement by way of compositionor a wage earners' plan by way of a composition confirmed under thistitle . . . .3 Bankruptcy Act § 656a, 52 Stat. 935 (1938), 11 U.S.C. § 1056a (1958) provides:The Court shall confirm a plan if satisfied that-. .. (4) the debtor has not been guilty of any of the acts or failed to per-form any of the duties which would be a bar to the discharge of the bank-rupt . . . .745BOSTON COLLEGE INDUSTRIAL AND COMMERCIAL LAW REVIEWthe debtor had availed himself of similar relief within a six year period. Onappeal the district court ruling was reversed. HELD: The bar of section14c(5) was not intended to apply to those seeking extensions of time in aChapter XIII proceeding (wage-earner plan), regardless of resort to a similarplan within six years.Prior to the decision in the instant case, the cases dealing with thissame issue had reached contrary conclusions. In re Bingham4 had deniedconfirmation of a plan on the ground that Congress' intent in enacting section14c(5) explicitly states that no discharge shall be granted if a wage-earnerbut also to prevent the growth of a class of habitual users of wage-earnerplans. The court reasoned that unless section 14c(5) was so interpreted,abusive use of Chapter XIII relief would result.Another district court opinion, In re Autry,5 reached an opposite result,thereby setting the stage for the case at hand. Emphasizing that section14c(5) explicitly states that no discharge shall be granted if a wage-earnerplan by way of a composition has been confirmed within six years, the Autrycourt granted confirmation of the debtor's plan since the plan was for anextension of time only.° The court, interestingly enough, did not knowwhether the earlier plan in Bingham was an extension or a composition, andsought to reconcile the cases by assuming that the first plan in Binghaminvolved the latter.?The court of appeals in the instant case, faced with this division, re-solved the conflict by overruling Bingham, emphasizing that extension plansdo not come "within the letter or the spirit of the bar in Section 14, sub. c (5)."It is submitted that the result reached in Holmes is unquestionably cor-rect. Confirmation of a plan under Chapter XIII will be granted where thecourt finds that "the debtor has not been guilty of any of the acts or failedto perform any of the duties which would be a bar to the discharge of thebankrupt." Section 14c(5) states the grounds for denial of a discharge inordinary bankruptcy° and it is at once obvious that the statute is "noticeablysilent with respect to extensions of time." 1° A literal reading of section14c(5) reveals that it was proper for the court to confirm the subsequentextension plan.Rather than rest the decision on this narrow ground, the court wentfurther by remarking that wage-earner extension plans. do not fall withinthe spirit of 14c(5). Support for this conclusion can be found in the factthat the fundamental aim of Chapter XIII is to provide a system under4 190 F. Supp. 219 (D. Kan. 1960).5 204 F. Supp. 820 (D. Kan. 1962).6 Id. at 821.7 Ibid. Failure to disclose the precise facts involved in the Bingham case generatedconsiderable confusion as to whether the earlier plan was an extension or a composition.The court in the instant case makes it clear that an extension plan was involved inBingham and, therefore, in conflict with Autry.8 309 F.2d at 749.9 Supra note 2.10 Examination of the legislative history of the Chandler Act, 52 Stat. 840 (1938),points out that Congress recognized the distinction between compositions and extensionsand deliberately included only the former within section 14c(5). See generally It Rep.No. 1409, 75th Cong., 1st Sess. 29 (1937).746CASE NOTESwhich the debtor who finds himself in financial difficulties can pay his obliga-tions, either in full or in part, out of his future earnings. The virtue of sucha scheme lies not only in the fact that in most instances the debtor is ableto avert the stigma of bankruptcy, which would in all probability result ashis creditors became more and more insistent, but also in the fact that credi-tors themselves are generally repaid in full. 11 Public policy would, therefore,appear to dictate that the courts take a liberal view toward plans whose pur-pose is the financial rehabilitation of the wage earner, since under an exten-sion plan "The debtor seeks to pay debts—not to discharge them. 7"2 The courtin Holmes endorses these policy considerations in its ruling that extensionplans do not fall within the "spirit" of section 14c(5).Where the debtor has received a discharge in bankruptcy or has had awage-earner plan by way of composition confirmed within a six year period,it would appear at first that section 14c(5) taken together with section656a(3) would bar confirmation of a petition for a subsequent plan whetherby way of extension or composition. The cases dealing with this problem aresplit," the majority taking the view that the purposes behind section 14c(5)are so inconsistent with the aims of Chapter XIII relief that the former isinapplicable by virtue of section 602,14 and this line of reasoning is cited withapproval by the court in the instant case.It is submitted that the conclusions reached in the majority of cases arecorrect, and when these rulings are read in conjunction with the decisionsreached in the instant case and in In re Autry, a trend in favor of widerusage of Chapter XIII proceedings is clearly discernible."EDWARD H. LONDON11 See discussion in note 15 infra of the striking success achieved under ChapterXIII, where it is pointed out that 98% of the total debts involved in the cases closed infiscal 1960 were repaid.12 In re Sharp, 205 F. Stipp, 786, 789 (ND. Mo. 1962).13 In re Mahalcy, 187 F. Supp. 229 (S.D. Cal. 1960) (confirmation approved); Inre Sharp, supra note 13, (confirmation approved); In re Schlageter, 37 Ref. J. 24 (D.N.J.1963) (confirmation denied).14 Bankruptcy Act 602, 52 Stat. 930 (1938), 11 U.S.C. 	 1002 (1958) states that"the provisions of Chapter 1 to VII inclusive, of this act, shall, insofar as they are notinconsistent or in conflict with the provisions of this Chapter, apply in proceedings underthis Chapter. . . ."15 Examination of the Report of the Judicial Conference of the United States, Pro-ceedings, at 209-10 (September 20-21, 1961) reveals that it is not surprising that thecourts have sought to encourage more frequent resort to Chapter XIII relief. Between1950 and 1960 the number of cases filed under the Bankruptcy Act increased from ap-proximately 34,000 to 110,034 and to 146,643 by the end of 1961. Nearly 90% of thetotal bankruptcies filed in 1960-61 involved non-business groups, i.e., wage earners, (id.at 211) and it is at once clear that striking success has been achieved in Chapter XIIIproceedings.During the fiscal year 1960, the unpaid liabilities scheduled in the 63,086 straightbankruptcy cases closed during the year were $469,865,567. During the sameperiod the debts affected in the 5,920 Chapter XIII cases completed were$5,277,737, of which $5,168,251, or 98% was paid to creditors. (Emphasis sup-plied.)Id. at 91.747

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