The HomeBanc Mortgage Corporation bankruptcy was filed on August 9, 2007, well over 2 years and 5 months ago. This week 386 bankruptcy preference adversary proceeding complaints were filed by the HomeBanc Mortgage Chapter 7 trustee. For those who have been lulled into ignorant bliss by the often quoted 2 year statute of limitations for bankruptcy preference actions, the case illustrates that the conversion of a Chapter 11 bankruptcy to Chapter 7 can result in up to a 1 year extension of the statute of limitations – i.e. up to a theoretical maximum of 3 years.
The Two Part Determination of the Statute of Limitations
The HomeBanc Mortgage Corporation bankruptcy is one on the comparatively rare illustrations of the two part test for determining the time limit for bringing of bankruptcy preference actions contained in Bankruptcy Code Section 546(a). Bankruptcy preference claims are time barred after
the later of:
2 years after the bankruptcy filing;
or
1 year after the appointment or election of the first trustee.
Under the second alternative, if a trustee is appointed in the second year of a bankruptcy, it will have a full year to decide whether to bring preference claims. That is exactly what happened in the HomeBanc Mortgage bankruptcy. For a further discussion of the factors affecting the timing of bankruptcy preference claims see our article Bankruptcy Preference Claims Timing – The Statute of Limitations, Other Factors.
The HomeBanc Mortgage Application of the Trustee’s Extension
HomeBanc Mortgage filed for bankruptcy under Chapter 11 on August 9, 2007. The case was converted on February 24, 2009. The trustee also was appointed by order signed on February 24, 2009, although the order was docketed on February 25, 2010. (The date of the execution of the order and not the date of docketing of the order is the controlling date.)
The calculation of the “1 year after the appointment of the trustee” uses the anniversary date rule. Applying this rule, the anniversary date of the day following the date of the trustee’s appointment is the last day to bring preference actions under Section 547.
In this case, the appointment occurred on February 24, 2009 and the last day to bring a Section 547 adversary proceeding is February 25, 2010. The trustees barrage of 386 preference claims, including 83 filed on February 22, 93 on February 19 and 207 on February 18, was mandated by the looming expiration of the statute of limitations.
The Need for a Critical Evaluation of the Statute of Limitations Defense
Whenever the filing of avoidance actions comes down to the wire, it is always critical for a defendant to exhaust all possible arguments that the statute of limitations has expired. There are some important nuances in the calculation of the 1 year period. Our analysis of the HomeBanc Mortgage bankruptcy is a generic application of the general rules and no substitute for a keen, legal eagle digging in to see if any particular complaint might be distinguishable.
Finally, in many (but not all) bankruptcy courts the statute of limitations in Section 546(a) is not a jurisdictional bar. That simply means that a defendant’s failure to plead the expiration of the statute of limitations may cause the waiver of the defense. If there is an argument to be made … plead.
For those with morbid curiosity about the unfortunate 386 bankruptcy preference defendants, we have added to our DocSheets reports the HomeBanc Mortgage Corporation bankruptcy docket entries. The list of defendants is populated with numerous notables, including prominent Atlanta law firms, the Tampa Bay Buccaneers and the Carolina Hurricanes Hockey Club.