The Court of Appeals, Division Two, holds that a claim that is already time-barred at the time a bankruptcy debtor seeks bankruptcy protection does not become part of the bankruptcy estate.

A former bankruptcy debtor brought tort claims in Maricopa County Superior Court against the church based on clerical sexual abuse that she experienced as a minor.  The then-operative statute of limitations for the debtor’s claims had expired before she filed for bankruptcy, only to be revived post-petition by statutory revision.  The church moved to dismiss for lack of standing by arguing that the debtor’s claims were part of her bankruptcy estate and, thus, could be asserted only by the bankruptcy trustee.  The superior court agreed and entered judgment for the church.  The debtor appealed.

The Court of Appeals vacated the judgment.  By the time she sought bankruptcy protection, the debtor’s interest in her claims against the church had already been extinguished by the then-applicable statute of limitations and, for that reason, were not pre-petition property that became the property of the bankruptcy estate.  The debtor’s property interest in those claims was not merely contingent at that time; it was effectively terminated and of no value.  Because the bankruptcy estate had no more rights in the debtor’s property than those of the debtor herself pre-petition, the bankruptcy estate’s ability to realize upon those interests was subject to those limits that existed on the petition date.  Meanwhile, the debtor’s claims became actionable again only post-petition.  Therefore, the debtor, not the bankruptcy trustee, had standing to assert them.

The Court rejected the church’s and the dissent’s argument that the timing of the alleged abuse should govern who holds the property interest in the debtor’s resulting claims and that, because her claims were not conclusively barred (i.e., actually litigated) when she sought bankruptcy protection, those claims remain the assets of the bankruptcy estate.  Instead, the Court found that although the statute of limitations is an affirmative defense subject to waiver, a claim clearly brought outside the relevant limitations period is in fact conclusively barred, and its associated interest extinguished.

Judge Eppich authored the opinion, in which Judge Staring joined.  Judge Brearcliffe dissented.

Posted by: Matthew Stanford