In the recent Chicago bankruptcy case In re Gouletas, U.S. Bankruptcy Judge Timothy A. Barnes ruled that obligations are not extinguished by statutes of limitation and, even after the expiration of the limitation period, a creditor retains its rights in collateral so long as the underlying debt is enforceable.
BackgroundThe Gouletas case involved a complicated series of remedial actions by a creditor that culminated in the creditor exercising its rights under a security agreement to force a LLC to bring a suit for breach of fiduciary duty and self-dealing against its former manager, the Chapter 7 debtor. The debtor argued the creditor’s exercise of control over the LLC under the security agreement to force the commencement of the action against the debtor was invalid because the ten-year statute of limitations for actions on written contracts expired. More specifically, the debtor moved to dismiss the suit because he believed the security agreement was no longer enforceable after the expiration of the statute of limitations and, consequently, the creditor had no legal authority to direct the LLC to commence the action against him.
DiscussionIllinois law is clear that statutes of limitation do not extinguish obligations but only bar the remedy of an action on the debt. In Gouletas, Judge Barnes surveyed case law on the effect of statues of limitations on claims, including the Supreme Court’s decision in Midland Funding LLC v. Johnson (bankruptcy proofs of claim based on time-barred claims are not “false, deceptive, or misleading” and do not violate...
