Because no recent opinions have been published by the Delaware Bankruptcy Court, I wanted to touch on a subject that is vital in nearly every preference or fraudulent transfer case: The Statute of Limitations For A Preference Claim
A. Statute of Limitations
The debtor has two years from the date it filed its petition for bankruptcy to file a complaint seeking the recovery of a preference payment. However, if the court appoints a trustee, the limitations period for filing the lawsuit extends one year from the date the trustee was appointed. Preference litigation cannot be commenced once the court closes or dismisses the debtor’s bankruptcy.
B. Service of the Summons and Complaint
The two-year time period, or statute of limitations, is not the only deadline governing the commencement of the preference action. The statute of limitations governs when the preference complaint must be filed with the court. The Federal Rules of Bankruptcy Procedure govern how long the plaintiff has to serve the complaint on the party receiving the payments (i.e. the defendant). Under the Federal Rules, the party filing the lawsuit must serve the defendant within 120 days.2
Note, however, that the party may request an extension of time in which to complete service. The party commencing the lawsuit can achieve service in a number of methods, including mailing the summons and complaint to the defendant by First Class mail.
Failing to file a complaint within the applicable statute of limitations is a sure-fire way for a party to lose its rights. In any litigation, preference or otherwise, the first thing to check is whether a claim is time-barred. We have published several posts concerning the statute of limitations: Statute Of Limitations Posts. If you would like additional information about the statute of limitations, or preference litigation generally, please take a look at our “Preference Reference” – available here.