On an issue where bankruptcy courts are divided, Bankruptcy Judge Bruce A. Harwood ruled that the two-year extension of the statute of limitations does not apply to an adversary proceeding initiated by a chapter 13 debtor.
Nine months after a couple filed their chapter 13 petition, they sued a bank for allegedly overcharging them and generally botching the servicing of their modified mortgage. The bank responded with a motion to dismiss, contending that the debtors’ various claims under state and federal law were barred by statutes of limitations.
In his February 7 opinion, Judge Harwood said that the complaint would be timely if the two-year expansion of the statutes of limitations under Section 108(a) applied to the chapter 13 debtors’ claims.
If a statute of limitations would expire after filing, Section 108(a) says that “the trustee may commence such action only before the later of (1) [the date when the statute would expire on its own or] . . . (2) two years after the order for relief.”
The courts are split, Judge Harwood said. He cited decisions from Texas, Virginia and Louisiana for holding that Section 108(a) only applies to a chapter 13 trustee. He cited courts from California, Washington, D.C., and Pennsylvania as allowing chapter 13 debtors to benefit from the two-year extension.
Judge Harwood concluded that “the better reasoned decisions are those that hold that Section 108(a) cannot be used by chapter 13 debtors to toll the time period for commencing an action.”
“By its very terms,” he said, Section 108(a) “applies to actions that may be commenced by ‘a trustee,’ not to actions commenced by a ‘debtor.’”
Although the debtors otherwise might have stated some claims that would survive dismissal, Judge Harwood was required to dismiss the adversary proceeding because “chapter 13 debtors are not entitled to the protections of Section 108(a).”
In similar cases where the statute of limitations is a problem, debtors should consider persuading the chapter 13 trustee to join the suit as an additional plaintiff or stipulate that the debtor may sue in the trustee’s name, with recoveries earmarked for the chapter 13 estate. If the trustee declines, a chapter 13 debtor could take a page out of the chapter 11 playbook by filing a motion for permission to sue in the trustee’s name, just like chapter 11 creditors’ committees obtain permission to sue directors and officers when the debtor obviously will not. We do not warrant whether any of these alternative procedures will prevail.