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Maryland Court of Special Appeals Holds that the Tolling Provisions of Courts and Judicial Proceedings Section 5-202 Apply to Denial of Discharge in Chapter 7 Bankruptcy

The Maryland Court of Special Appeals recently held in Lowery v. Hoang, __ A.3d __, 2019 WL 965557 (Md. Spec. Ct. App., February 27, 2019) that creditors of debtors whose bankruptcies are dismissed or denied a discharge are entitled to the tolling provisions provided for in Md. Code Cts. & Jud. Proc. §5-202. That section provides:

If a debtor files a petition in insolvency which is later dismissed, the time between the filing and the dismissal is not included in determining whether a claim against the debtor is barred by the statute of limitations.

(Emphasis added).

The facts as set forth by the Court are straight forward. Hoang incurred a debt to Lowery in 2002 that was reduced to a judgment in state court. Hoang filed for bankruptcy in 2005 and was denied a discharge. Hoang received $87,000 in 2016 out of which Lowery sought to be paid. Lowery did not renew the judgment within twelve years pursuant to Md. Code Cts. & Jud. Proc. §5-102(a)(3). Absent some form of extension, the 2002 debt would be extinguished.

The Court wrestled with the terms “dismissed” and “dismissal” in its analysis of the case. Hoang was denied a discharge, but her bankruptcy was not dismissed. The Court set out to consider what the legislature intended when using the words “dismissed” and “dismissal”. If those terms meant what they mean in modern bankruptcy practice, then Hoang’s bankruptcy was not dismissed, and the tolling provision would not preserve Lowery’s claim. If the legislature intended the terms to have a broader meaning then other resolutions of bankruptcy proceedings might be encompassed in the statute.

The Court noted that the purpose of the prior enactment of the statute was to ensure that creditors whose debtors did not obtain a discharge retained their claims post-bankruptcy. The Court ultimately resolved the question by equating “dismissed” and “dismissal” with an unsuccessful bankruptcy. Thus, the Court held that the legislature “intended to hold creditors unharmed by preserving their otherwise time-barred claims while participating in an unsuccessful bankruptcy.” 2019 WL 965557 *5. The terms “dismissed” and “dismissal” as used in the statute extend to cases in which the debtor is denied a discharge pursuant to 11 U.S.C. § 727. As such, Lowery’s claim was preserved.

The Court encouraged the legislature to take a further look at the language of the statute. It offered, “[o]f course, if this is not what the current legislature thinks the 1815 legislature intended, or if they have a new idea about how to deal with state claims while a debtor is in bankruptcy, they are free to rewrite CJ § 5-202. We encourage it.” Id. n. 14.

For further information on the intersection of state law and bankruptcy matters, please contact James Schraf at [email protected] or 443-569-0755. In addition, Yumkas, Vidmar, Sweeney & Mulrenin, LLC is a boutique bankruptcy law firm that is well-equipped to represent debtors and creditors in all aspects of bankruptcy proceedings.