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Bankruptcy — statute of limitations

United States Court of Appeals For the Seventh Circuit

Civil

Bankruptcy — statute of limitations

The appointment of an interim trustee cannot extend the statute of limitations for avoidance actions in bankruptcy.

“[T]he danger that a debtor in possession might stave off conversion to Chapter 7 in an effort to stymie legitimate creditors is not great enough to justify us in ignoring clear statutory language—clear in this case because section 546(a) extends the time for suit following appointment of a trustee under section 702, while an interim trustee is appointed under section 701. The reason it isn’t grave enough to justify judicial surgery on the statute is that creditors are not powerless to prevent the running of the statute of limitations. A creditor can move for the appointment of a trustee in a Chapter 11 bankruptcy, see 11 U.S.C. § 1104; Starzynski v. Sequoia Forest Industries, 72 F.3d 816, 821 (10th Cir. 1995); 5 Collier on Bankruptcy, supra, ¶ 546.02[2][a], and if the ground of the motion is (as in the Starzynski case) that the appointment is necessary to prevent creditors’ claims from being time-barred, the bankruptcy judge would be remiss if he failed to grant the motion. Furthermore, the statute of limitations in 11 U.S.C. § 546(a) is subject to equitable tolling. See, e.g., Jackson v. Astrue, 506 F.3d 1349, 1354-55 (11th Cir. 2007); In re Pugh, 158 F.3d 530, 537 (11th Cir. 1998); In re M & L Business Machine Co., 75 F.3d 586, 591 (10th Cir. 1996); In re United Insurance Management, Inc., 14 F.3d 1380, 1384-85 (9th Cir. 1994); cf. Bailey v. Glover, 88 U.S. (21 Wall.) 342, 345-50 (1874). If without any laxity or other fault the creditors can’t procure the appointment of a permanent trustee within the statutory deadline, the doctrine of equitable tolling would permit an extension. Thus the statute can be read as written without prejudice to the rights of the legitimate creditors of a Chapter 11 bankrupt.”

Reversed.

12-3888, 12-3902, 12-3903 & 12-3904 In re Draiman

Petitions for Leave to Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Barnes, Bankr. J., Posner, J.

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