Statute of Limitations & Bankruptcy

Home/Bankruptcy Law/Bankruptcy Case Law & Notes Index/Statute of Limitations & Bankruptcy
Statute of Limitations & Bankruptcy2020-11-20T17:20:59-07:00

This website does not provide legal advice.  It is for informational purposes only. Please do not act or refrain from acting based on anything you read on this site. The information contained in this web site, article or link may be outdated, incorrect or not applicable; it is your obligation to confirm the accuracy. Using this site or communicating with Law Office of D.L. Drain, or any agent/employee of our firm, through this site does not form an attorney/client relationship. This site is legal advertising. Please review the full disclaimer for more information.

It is very important that you obtain legal advice from an experienced attorney regarding your particular situation. Consultation before you take action will certainly cost you less than it will cost to fix your unintentional errors.

STATUTE OF LIMITATIONS IN BANKRUPTCY

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

Debtors may amend their Schedules at any time — F.R.Bankr.P 1009 — but some courts hold that this right is dependent upon the Debtors’ acting in good faith and no other parties being prejudiced by the late amendment. See, e.g., In re Cinelli, Chapter 7, Case No. 05-16962 , United State Bankruptcy Court of the Northern District of New York , 2006 Bankr. LEXIS 3432; In re Price, Bankruptcy Case No. 06-62721-MGD , United States Bankruptcy Court for the Northern District of Georgia, Atlanta Division, 2006 Bankr. LEXIS 3247.

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.

The limitations period in an action on a contract provides, in pertinent part: An action for debt shall be commenced and prosecuted within six years after the cause of action accrues, and not afterward if the indebtedness is evidenced by or founded on …[a] contract in writing that is executed in this state. A.R.S. § 12-548(A)(1).

Under Arizona law, the six-year statute of limitations codified in A.R.S. § 12-548, begins to run on the due date of each matured but unpaid installment. Navy Fed. Credit Union v. Jones, 187 Ariz. 493, 494, 930 P.2d 1007, 1008 (App. 1996). However, with regard to unmatured future installments, where the subject contract contains an optional acceleration clause, the six-year limitations “period commences on the date the creditor exercises the optional acceleration clause.


There are cases from the State of Washington that have held that when a debtor files BK, the SOL on foreclosures runs from the date of the last payment that was due PRIOR to the date of discharge.  Silvers v. U.S. Bank Nat. Ass’n, 2015 WL 5024173 (W.D. Wash. 2015) (even with an installment note, the statute of limitation to enforce a deed of trust began to run as of the date the installment payment was due immediately preceding the date of discharge; because the debtor received a Chapter 7 discharge on January 25, 2010, the statute of limitation began to accrue with respect to commencing a trustee sale when the Jan 1, 2010 payment was due, which was more than 6 years prior to the commencement of the trustee sale); Edmundson v. Bank of America, 194 Wash. App. 920, 931, 378 P.3d 272, 278 (Ct. App. 2016) (in an installment note, the statute of limitations for all future installments accrues when each future installment becomes due but left unpaid until the debtors no longer had personal liability under the note as of the date of their bankruptcy discharge); Jarvis v. Federal National Mortgage Ass’n, 2017 WL 1438040 (W.D. Wash 2017) (the last payment due on an installment note commences the final six-year period to enforce a deed of trust securing the note, such as in the situation when either the final payment becomes due, when a lender accelerates the note, or upon the payment due date immediately prior to the discharge of a borrower’s personal liability in bankruptcy).


ARIZONA SUPREME COURT DECIDES STATUTE OF LIMITATION RUNS FROM THE DATE OF FIRST UNCURED MISSED PAYMENT

Mertola LLC v Alberto J Santos/Arlene Santos CV-17-0109-PR (AZ debt collectionSupreme Court, 7-27-18)  Statute of limitation for debt collection in Arizona – cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment.

Decision:

Mertola, LLC, sued Alberto Santos and his wife Arlene Santos to collect an outstanding credit-card debt. Although the credit-card agreement gave the creditor the option of declaring the debt immediately due and payable upon default, we hold that even if that option was not exercised, the cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment. Mertola’s claim was barred by the statute of limitations six years after that date pursuant to A.R.S. § 12-548(A)(2).  We vacate the court of appeals’ opinion and affirm the trial court’s summary judgment in favor of Santos. We award Santos reasonable attorney fees pursuant to the Account Agreement and costs pursuant to A.R.S. § 12-341.


Harle v. Williams: No. 1 CA-CV 17-0665 (Az Ct Appeals, Div One 3-14-19)  Holds that the enforcement period on a judgment is tolled until the judgment is executable, and this judgment wasn’t executable until the date of William’s breach.

Harle and Williams were business partners, then the partnership split.  Harle sued Williams. In 2011 the two reached a settlement in which Williams agreed to a total judgment amount and to make monthly payments. As long as Williams made his monthly payment, according to the terms of the settlement, Harle was precluded from recording or enforcing the judgment.  The superior court held the judgment had not expired.  After all, the court implied, it would be very unfair to allow a debtor to promise the world to a judgment holder in order to convince them to hold off on recording a judgment, but then back out after 5 years, and leave the judgment holder  “[prejudiced in the extreme].”  (NOTE – renewal of judgments in Arizona is now changed from 5 to 10 years).

Melikian v. McCormick, No. 15-3983, (8th Cir. U.S. Court of Appeal) recently affirmed a bankruptcy court’s rejection of a proof of claim filed by a creditor where the claim was based upon a debt which was time barred by the creditor’s failure to comply with the applicable state law deadline for pursuing a deficiency judgment following a non-judicial foreclosure.

The bankruptcy court determined that automatic stay provisions of Section 362 of the Bankruptcy Code impliedly preempted the Arizona state law concerning the 90-day deadline — by preventing the creditor from perfecting service on the debtors — but, Section 108(c) provided for the resumption of any state limitations following the expiration of the automatic stay. Under this legal framework, the bankruptcy court determined that the creditor was required to proceed with its deficiency action per Arizona state law no later than Dec. 16, 2013 which it failed to do so. Thus, the bankruptcy court concluded that the creditor’s claim was barred.

Pursuant to A.R.S. Section 33-814, the 90-day period at hand expired on Jan. 7, 2013 – i.e. 90 days after the trustee’s sale on Oct. 9, 2012. However, the automatic stay in the bankruptcy did not expire until Nov. 14, 2013 when the chapter 11 case was closed. Accordingly, the Court found that the bankruptcy court correctly concluded that pursuant to Section 108(c)(2) the operative deadline for the creditor to seek a deficiency judgment under Section 33-814 lapsed on Dec. 16, 2013.

The applicable Arizona statute provides that “[W]ithin ninety days after the date of [a trustee’s sale], an action may be maintained to recover a deficiency judgment] against any person” obligated — directly or indirectly — under the contract secured by the deed of trust. Ariz. Rev. Stat. s. 33-814(A) (“Section 33-814”). If no action is brought within that timeline the statute provides that “the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist.” Id. at s. 33-814(D). Per the courts in Arizona, this provision has been deemed a statute of repose.

The bankruptcy court’s ruling rejecting the creditor’s claim was upheld by both the District Court and the Eighth Circuit.

Melikian v. McCormick, No. 15-3983, (8th Cir. U.S. Court of Appeal) recently affirmed a bankruptcy court’s rejection of a proof of claim filed by a creditor where the claim was based upon a debt which was time barred by the creditor’s failure to comply with the applicable state law deadline for pursuing a deficiency judgment following a non-judicial foreclosure.

The bankruptcy court determined that automatic stay provisions of Section 362 of the Bankruptcy Code impliedly preempted the Arizona state law concerning the 90-day deadline — by preventing the creditor from perfecting service on the debtors — but, Section 108(c) provided for the resumption of any state limitations following the expiration of the automatic stay. Under this legal framework, the bankruptcy court determined that the creditor was required to proceed with its deficiency action per Arizona state law no later than Dec. 16, 2013 which it failed to do so. Thus, the bankruptcy court concluded that the creditor’s claim was barred.

Pursuant to A.R.S. Section 33-814, the 90-day period at hand expired on Jan. 7, 2013 – i.e. 90 days after the trustee’s sale on Oct. 9, 2012. However, the automatic stay in the bankruptcy did not expire until Nov. 14, 2013 when the chapter 11 case was closed. Accordingly, the Court found that the bankruptcy court correctly concluded that pursuant to Section 108(c)(2) the operative deadline for the creditor to seek a deficiency judgment under Section 33-814 lapsed on Dec. 16, 2013.

The applicable Arizona statute provides that “[W]ithin ninety days after the date of [a trustee’s sale], an action may be maintained to recover a deficiency judgment] against any person” obligated — directly or indirectly — under the contract secured by the deed of trust. Ariz. Rev. Stat. s. 33-814(A) (“Section 33-814”). If no action is brought within that timeline the statute provides that “the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist.” Id. at s. 33-814(D). Per the courts in Arizona, this provision has been deemed a statute of repose.

The bankruptcy court’s ruling rejecting the creditor’s claim was upheld by both the District Court and the Eighth Circuit.

statute of Limitations

ARIZONA SUPREME COURT DECIDES STATUTE OF LIMITATION RUNS FROM THE DATE OF FIRST UNCURED MISSED PAYMENT

Mertola LLC v Alberto J Santos/Arlene Santos CV-17-0109-PR (AZ debt collectionSupreme Court, 7-27-18)  Statute of limitation for debt collection in Arizona – cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment.

Decision:

Mertola, LLC, sued Alberto Santos and his wife Arlene Santos to collect an outstanding credit-card debt. Although the credit-card agreement gave the creditor the option of declaring the debt immediately due and payable upon default, we hold that even if that option was not exercised, the cause of action to collect the entire debt accrued as of the date of Santos’s first uncured missed payment. Mertola’s claim was barred by the statute of limitations six years after that date pursuant to A.R.S. § 12-548(A)(2).  We vacate the court of appeals’ opinion and affirm the trial court’s summary judgment in favor of Santos. We award Santos reasonable attorney fees pursuant to the Account Agreement and costs pursuant to A.R.S. § 12-341.


Harle v. Williams: No. 1 CA-CV 17-0665 (Az Ct Appeals, Div One 3-14-19)  Holds that the enforcement period on a judgment is tolled until the judgment is executable, and this judgment wasn’t executable until the date of William’s breach.

Harle and Williams were business partners, then the partnership split.  Harle sued Williams. In 2011 the two reached a settlement in which Williams agreed to a total judgment amount and to make monthly payments. As long as Williams made his monthly payment, according to the terms of the settlement, Harle was precluded from recording or enforcing the judgment.  The superior court held the judgment had not expired.  After all, the court implied, it would be very unfair to allow a debtor to promise the world to a judgment holder in order to convince them to hold off on recording a judgment, but then back out after 5 years, and leave the judgment holder  “[prejudiced in the extreme].”  (NOTE – renewal of judgments in Arizona is now changed from 5 to 10 years).

Brown v. Quantum3 Group LLC; MOMA Funding LLC, (In re Brown) BAP No. SC-18-1121-SFL (9th Circuit, Sep 03,2019)  Ruling : BAP for 9th Cir. affirmed ruling of bankruptcy court (SD Cal.) overruling debtors’ claim objection. Statute of limitations was continuously tolled by applicable state law during pendency of bankruptcy and entry of discharge did not re-start limitations period. Discharge injunction further tolled California 4-year limitations period. Debtors Charles and Holly Brown appeal the overruling of their objection to creditor MOMA Funding LLC’s unsecured proof of claim of $832.30. The Browns objected on the ground that the claim was barred by
the applicable statute of limitations. They acknowledge that the statute of limitations had not run when they filed their bankruptcy case but contend that the claim is barred by the applicable statute of limitations because the applicable limitations period expired postpetition before the creditor filed its claim.
We AFFIRM the order overruling the Browns’ claim objection. We agree with the bankruptcy court’s conclusion that the time to commence an action on the underlying claim has been continuously tolled by applicable state law since the filing of the Browns’ bankruptcy. We publish because no prior published decision has determined whether the discharge injunction triggers the limitations period suspension provided for in the relevant California tolling statute – California Code of Civil Procedure (“C.C.P.”) § 356.


Does obtaining a bankruptcy discharge start the running of the statute of limitations?

Since the entry of a bankruptcy discharge means that no future payments are due (even with secured debts) that may mean the entry of the discharge starts the running of the statute of limitations, but no Arizona cases on point. (Discussion in CLE program presented by Larry Hirsch and Brad Pack 1-2019)

Ortez, 98 F.3rd 1037 (1998), Debtor files bankruptcy, discharge entered, years later the secured lender starts foreclosure.  District Court states the statute of limitations runs from each each installment (follows Navy Federal).

As of 12/2018 Arizona court have not answer this question, but several Washington cases have dealt with the issue.  (Arizona follows Washington if there is no case on point).  (Note – Arizona and Washington have the same statute of limitations and trustee sale process, and equivalent of Navy Federal case).

Series of Washington cases:

Jarvis v FNMA, 17-35428 (9th Cir Ct App, 6/14/19)  The Jarvises never reaffirmed or made any further payments on the note after their bankruptcy, and neither Fannie Mae nor any prior holder of the deed of trust ever accelerated the debt or initiated foreclosure proceedings. The statute of limitations to foreclose on the deed of trust ran from the last installment due before the Jarvises’ bankruptcy discharge in February 2009 and expired before the Jarvises brought this quiet-title action nearly seven years later in February 2016. Summary judgment in favor of the Jarvises on their quiet-title claim was therefore appropriate. See Wash. Rev. Code § 7.28.300

Silvers, 2015 W.L. 5024173 (Statute of limitations begins running the last time any payment was due.  The discharge 1/25/2010, therefore statute of limitations runs from the discharge date because  no longer any payments due.  Edmundson v. Bank of Am., 378 P.3d 272, 194 Wash. App. 920 (2016) Chapter 13 case.  Chapter 13 discharge, trustee’s sale set within 6 years of the discharge date.  The discharge eliminated the personal obligation to pay the debt therefore starts the statute of limitations.  The Statute of Limitations commences with the first payment missed after entry of Discharge. Jarvis v. Fed. Natl. Mortg. Assn., 2017 WL 1438040;

Brad Pack disagrees citing Johnson v. Home State Bank, 501 U.S. 78 (1991) (bankruptcy discharges personal liability while leaving in rem rights intact.)  Ortiz v. Trinity Fin. Services LLC, 98 F. Supp. 3d 1037, 1044 (D. Ariz. 2015) (borrower failed to demonstrate likely success of claim on merits that SOL barred DOT foreclosure despite fact that notice of trustee’s sale not recorded for over 9 years after bk filing).

1 CA-CV 18-0476 – Monroe v. AZ Acreage, et al.

1. Whether the U.C.C.’s six-year statute of limitation governing actions to recover money owed under promissory notes (A.R.S. § 47-3118(A)), rather than the four-year statute of limitation governing instruments created outside the state (A.R.S. § 12-544(3)), apply to the promissory notes and related deeds of trust executed in Nevada. 2. Whether the U.C.C.’s six-year statute of limitation governing actions to recover money owed under promissory notes (A.R.S. § 47-3118(A)), rather than the four-year statute of limitation governing instruments created outside the state (A.R.S. § 12-544(3)), apply to the guaranty agreements executed in Nevada.

CREDITOR FILED TO PRESERVE JUDGMENT LIEN (STATUTE OF LIMITATIONS RUNS) DURING BANKRUPTCY

In re Dobos, 9th Cir BAP, 8/2/19 A creditor seeking to enforce an avoided lien needs to ensure that the lien does not otherwise expire during the course of the litigation or appeal. In this case, a judgment creditor whose lien had been avoided filed a motion to reopen the debtor’s bankruptcy case but then failed to take further action for two years. In the meantime, the judgment lien expired under state law. As a result, the bankruptcy court’s dismissal of the nondischargability action was affirmed. Further, a motion to dismiss filed after an answer has been filed is still proper under Rule 12(c) or 12(h)(2).

The bankruptcy court granted a debtor’s motion to dismiss judgment creditors’ adversary proceeding seeking to have a judgment lien deemed nondischargable. The bankruptcy court ruled that the judgment creditors’ failure to act to preserve their judgment liens during the pendency of the bankruptcy case and the subsequent motion to reopen the bankruptcy case made it proper for the court to dismiss the case on the pleadings alone.

A.R.S. 12-508Effect of acknowledgment upon barred action When an action is barred by limitation no acknowledgment of the justness of the claim made subsequent to the time it became due shall be admitted in evidence to take the action out of the operation of the law, unless the acknowledgment is in writing and signed by the party to be charged thereby.


Stimpson v. Midland Credit Management 18-35833 (9th Cir. Ct Apps, 12/18/19) The Ninth Circuit affirmed the district court’s summary judgment in favor of defendant in an action under the Fair Debt Collection Practices Act. It rejected plaintiff’s claim that a debt collector’s letter was deceptive or misleading under 15 U.S.C. § 1692e because it attempted to persuade him to pay a time-barred debt. A debt collector is entitled to collect a lawful, outstanding debt even if the statute of limitations has run, so long as the debt collector does not use means that are deceptive or misleading and otherwise complies with legal requirements. There is nothing inherently deceptive or misleading in attempting to collect a valid, outstanding debt, even if it is unenforceable in court.

Go to Top