I recently had an email exchange regarding statute of limitations tolling in bankruptcy, with a friend who is a fellow bankruptcy attorney. My friend posed a couple of questions based on an interesting fact pattern. Herewith I offer a slightly edited version of the exchange.
First, here is my friend’s email:
Salient Facts: Chapter 7 case filed. Debtor has some accounts receivable. On the petition filing date, there are 4 months left on the Statue of Limitations to bring an action on the accounts receivable. The Chapter 7 Trustee sold the accounts receivable to someone we’ll call, Doug.
1. How long does Doug have to bring suit on the accounts receivable he purchased from the Trustee?
2. Section 108(a) gives the Trustee 2 years from the petition date to commence an action. It also seems to extend the statute of limitations by some period, which I used to assume was the pendency of the bankruptcy case, ending when it closed. But now that I read the language, it is not at all clear. Section 108(a)(1) has the statement: “[I]ncluding any suspension of such period occurring after the commencement of the case…”; What the heck does that mean? Does there need to be a formal suspension, or is it automatic, and if so, for how long?
Before I give you my response, here is some helpful background.
I. Statutes Of Limitations
At the risk of gross oversimplification, we can think of noncriminal law as a mechanism for resolving competing interests. In particular, litigation is the means we use for resolving disputes without the parties resorting to duels. If only Aaron Burr had resolved his dispute with Alexander Hamilton through litigation.
One of the goals in this process is to resolve disputes in a reasonably timely fashion, before the witnesses’ memories become distorted with the passage of time. Therefore, the statutes under which plaintiffs bring their suits contain time windows during which the actions must be initiated. If a plaintiff fails to take action within the relevant time window, the suit is time-barred. The plaintiff is said to have “slept on his rights.”