Most attorneys, even non-bankruptcy lawyers, are familiar with the “automatic stay” of 11 U.S.C. §362(a). Among other things, the automatic stay prohibits the commencement or continuation of litigation, lien perfection, foreclosures, and judgment enforcement, upon the debtor’s filing of a bankruptcy petition. Creditors and their attorneys alike, however, are less familiar with the provisions of 11 U.S.C. §108(c), which extends certain non-bankruptcy time limitations for taking actions that are prohibited while the automatic stay is in effect. Section108(c) 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.”
The extension applies equally to co-debtors (individuals jointly obligated with the debtor on a consumer debt) under Chapter 13.
While the language of section 108(c) appears relatively straight-forward, it can be a trap for those unfamiliar with the provision. The most common example of section 108(c)’s applicability is when a statute of limitations expires while a debtor is in bankruptcy. Because of the automatic stay, the civil action cannot be commenced. However, section 108(c) extends the period to bring the action until 30 days after the stay is lifted, usually via court order or because the bankruptcy is dismissed. Many, unfamiliar with section 108(c), wrongly assume that a bankruptcy case tolls any applicable statute of limitations. This is incorrect. Under section 108(c), if the statute of limitations ran while the bankruptcy case was pending, then a creditor has only 30 days to bring its claim once the stay is lifted. This is true regardless of how long the creditor was “stayed” by virtue of the bankruptcy filing.
Similarly, the deadline is not tolled if it expires after the automatic stay has been lifted. Rather, a creditor has until the expiration of the deadline itself, unless such deadline expires less than 30 days after the lifting of the stay, in which case the 30-day extension of sub-section (2) applies. Put another way, a creditor gets the longer of the expiration of the statute of limitations or the 30-day extension.
Most Chapter 7 bankruptcies proceed swiftly to a discharge providing a creditor with certainty about the effect on its claim. In those cases, the creditor’s debt is likely discharged and any applicable statute of limitations becomes moot. Many Chapter 13 bankruptcies, however, are active for several years before eventually getting discharged or dismissed. If dismissed without a discharge, pre-petition creditors once again may try to enforce their claims through collection or litigation. But they must act swiftly if the deadline to act ran while the bankruptcy was pending.
If you are a creditor and the individual or business who owes you money files bankruptcy, be aware about any applicable statute of limitations and the effect of section 108(c). Failure to do so could result in losing your right to collect on your claim if it has not been discharged by the bankruptcy.