Not all areas of the law are the same, which can lead to confusion for people who are unfamiliar with the law. This can be especially true for bankruptcy because it’s a mundane court process that millions of Americans have encountered, even though it takes place in federal court. One question debtors may ask is whether bankruptcy has a statute of limitations. The correct answer is that the question doesn’t really make sense because bankruptcy isn’t like a lawsuit or a criminal charge. Statutes of limitations establish time limits for filing cases or asserting claims anchored by a date when some event occurred, e.g. an injury. The point is to keep ancient claims out of courts.
There is no event that would anchor a date for when a debtor must file bankruptcy, which is why the question doesn’t make sense. There are, however, many situations in bankruptcy where timing claims matter, and statutes of limitations can play a role.
One important time-based limitation on bankruptcy is the period between bankruptcy cases that allow a debtor to obtain a discharge. These periods depend on the chapters debtors filed in and plan to file in. From chapter 7 to chapter 7, the period is eight years, and from chapter 7 to chapter 13 or chapter 11, the period is four years. Debtors can file in chapter 7 six years after a chapter 13 case, but if they either repaid 70 percent of the debt and proposed their plans in good faith or if they repaid 100 percent of their debts, then there is no waiting period. The window between two chapter 13 cases is just two years.
Importantly, nothing prevents debtors from filing bankruptcy within these time periods. They just can’t receive a discharge. One reason debtors file chapter 7 is to delay an inevitable foreclosure. There are other circumstances.
Statutes of limitations can play a direct role in a bankruptcy. One common example is when debt collectors or debt owners try to recover stale debts. This issue appeared prominently in a Supreme Court case earlier this year, in which a debtor tried to sue a creditor under the Fair Debt Collections Practices Act for filing a bad proof of claim. The U.S. Supreme Court held that the Bankruptcy Code itself protects debtors sufficiently that such a claim was invalid because the claim could be disallowed via the bankruptcy process.
So no, statutes of limitations aren’t a problem for most bankruptcies, but timelines do play a role. For example, bankruptcy contains many factors that affect a chapter 7 timeline that debtors should be aware of. If you are encountering financial difficulties, then discussing your situation with an experienced New York bankruptcy lawyer can help you strategize your options and best manage the process to ensure it’s as quick as possible.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.