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In re Swintek, 906 F.3d 1100 (9th Cir. 2018) (Ninth Circuit Court of Appeals held that period in which lien might expire and must be renewed is tolled by filing of a chapter 7)  In Swintek, pre-petition judgment creditor had obtained order for appearance and examination from California court, which automatically created lien on debtor’s assets under California law; such liens expire in one year unless renewed; judgment debtor filed for bankruptcy prior to expiration of lien, and judgment creditor subsequently sought determination from bankruptcy court that its lien had priority over chapter 7 trustee; trustee argued that lien had expired and had not been renewed after bankruptcy was filed and therefore was no longer valid lien; plaintiff/creditor responded that lien expiration was tolled by 11 U.S.C. § 108(a), which tolls commencing or continuing civil action against debtor that had not expired as of debtor’s petition date; court of appeals, in relying primarily on its prior holding in Spiritos v. Moreno (In re Spiritos), 221 F.3d (9th Cir. 2000), in which court had previously held that 11 U.S.C. § 108(a) tolls period for renewing judgment, held that extension of lien is also continuation of civil action that is contemplated by § 108 and is therefore also tolled)

Equitable tolling

A prior bankruptcy may toll the two-year period prescribed at § 523(a)(1)(B)(ii). Putnam v. Internal Revenue Serv. (In re Putnam), 503 B.R. 656 (Bankr. E.D.  N.C., 2014); Ollie-Barnes v.  Internal Revenue Serv. (In re Ollie-Barnes) (Bankr. M.D.N.C., 2014); In re Spinks, 591 B.R. 113 (Bankr. S.D. Ga., 2018)

Kertesz v. Ostrovsky (01/28/04 – No. G030640, G031373) (California Appellate Districts) Plaintiffs’ complaint, seeking an unpaid judgment, was timely; the limitations period was tolled by defendant’s bankruptcy petition and by the resulting automatic stay. Judgment of dismissal is accordingly reversed.

Shamus Holdings LLC v. LBM Financial, LLC, No. 10-2216 United States First Circuit, 06/09/2011 …11 U.S.C. § 362(a), which “gives debtors breathing room by stopping collection efforts in their tracks and permitting their resumption only when the stay is lifted by the bankruptcy court or dissolved by operation of law.” 229 Main St. Ltd. P’ship v. Mass. Dep’t of Envtl. Prot. (In re 229 Main St. Ltd. P’ship), 262 F.3d 1, 3 (1st Cir. 2001). The automatic stay prevents “the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor.” 11 U.S.C. § 362(a)(1).

Another statute within the Bankruptcy Code is implicated here. That statute, 11 U.S.C. § 108(c, is a tolling provision; it extends state statutes of limitations for creditors who are barred by the automatic stay from taking timely action against the debtor. See Young v. United States (In re Young), 233 F.3d 56, 59 n.3 (1st Cir. 2000). It provides in pertinent part:

  • If applicable non-bankruptcy law . . . fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, . . . and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of —
    • (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
    • (2) 30 days after notice of the termination or expiration of the stay under section 362 . . . of this title . . . with respect to such claim. 11 U.S.C. § 108(c)

Here, the bankruptcy occurred before the expiration of the limitations period and, at that time, LBM had the right to pursue judicial foreclosure. Id. § 1. Its ability to exercise that right was frustrated by the automatic stay. That stay prevented LBM, then and thereafter, from exercising its right to foreclose by commencement of a court action within the limitations period fixed by the Obsolete Mortgages Statute. See Perry v. Blum, 629 F.3d 1, 6 (1st Cir. 2010) (explaining that the automatic stay must be lifted to allow foreclosure to proceed).

The bottom line is that this case falls squarely within the maw of 11 U.S.C. § 108(c). That tolling provision preserves LBM’s option to commence a judicial foreclosure action until after the lifting of the automatic stay. See Spirtos v. Moreno (In re Spirtos), 221 F.3d 1079, 1080-81 (9th Cir. 2000); Morton v. Nat’l Bank of N.Y.C. (In re Morton), 866 F.2d 561, 565-66 (2d Cir. 1989); LBM Fin., LLC v. 201 Forest St., LLC (In re 201 Forest St., LLC), 422 B.R. 888, 895 (B.A.P. 1st Cir. 2010).

The 3-year period that ordinarily commences on the most recent date the tax return for the year in question is due, pursuant to 11 U.S.C. § 507(a)(8)(A)(i). The basic rule is, if the tax collection entity (state or federal) is prohibited from tax collection due to the existence of the automatic stay in a bankruptcy case that arose during, or overlapped, the running of the 3-year time, the time is tolled (or “suspended”) for the time in which the previous case’s automatic stay overlaps the 3-year period, plus an additional 90 days.

That rule is relatively simple to apply. You begin with the due date, plus extensions, extend it out 3 years, then add the time a prior bankruptcy case stay overlapped, then add on an additional 90 days. See also Taxes and Bankruptcy. Again, it is extremely important to talk to a competent tax attorney before advising your clients.

In re: Brenda Marie Jones, No. 10-60000 In a bankruptcy dispute involving the discharge of taxes owed by debtor in a new chapter 7 case to the California Franchise Board, judgment of the bankruptcy court is affirmed where debtor’s prior Chapter 13 bankruptcy case had no effect on the look back period such that the period was not suspended and the tax debt discharged.

Daff v. Good (In re Swintek), 906 F.3d 1100 (9th Cir. 2018). Section 108(c) extends the time to renew a judgment lien. Before bankruptcy, the creditor obtained a judicial lien against the debtor to enforce a judgment. By its term, the lien expired one year after it arose, unless renewed. The debtor filed bankruptcy within the one-year period. The creditor did not renew the lien. Section 108(c) extends until 30 days after notice of termination or expiration of the automatic stay any “period for commencing or continuing a civil action … on a claim against the debtor” that has not expired before the date of the filing of the petition. Section 362(a)(1) stays “the commencement or continuation” of an action “that was or could have been commenced before bankruptcy to recover a prepetition claim;” section 362(a)(2) stays “the enforcement against the debtor … of a judgment obtained before” bankruptcy; and section 362(a)(4) stays “any act to … enforce any lien against property of the estate.” The attempt to enforce a judgment is a continuation of the civil action.

Therefore, the renewal of the judicial lien is a continuation of the action, and section 108(c) extends the renewal deadline. A dissent argues that a judgment terminates the civil action, that the automatic stay deals separately with continuation and enforcement, and section 108(c) covers only continuation.