Third Circuit to decide whether litigation claimants in bankruptcy cases can rely on filed proofs of claim or must file complaints to preserve causes of action

On March 11, 2024, Judge Colm F. Connolly of the US District Court for the District of Delaware certified a direct appeal to the Third Circuit to resolve the question of whether a litigant’s claim is time barred where the claimant (i) filed a timely proof of claim in the bankruptcy case, but (ii) failed to file a complaint before the later of (a) the expiration of the applicable state law limitations period and (b) 30 days after the expiration of the automatic stay (typically confirmation of a plan) as described in Bankruptcy Code Section 108(c)(2).[1]

The underlying order now on direct appeal to the Third Circuit was issued by Judge Craig T. Goldblatt of the Delaware Bankruptcy Court in the case of In re Promise Healthcare Group, LLC, Case No. 18-12491. Judge Goldblatt held that “there is no reason for a creditor to file a complaint outside of bankruptcy” if that creditor also filed a timely proof of claim in the bankruptcy process” because “the determination of a claim’s validity is made as of the petition date.”[2]

Judge Connolly certified the direct appeal because (i) the Third Circuit and Supreme Court have not ruled on this issue and (ii) Judge Goldblatt’s order conflicts with the rulings of the First, Second, and Eighth Circuit Courts of Appeal and a district court in Pennsylvania, all of which require a claimant whose statute of limitation expired during the bankruptcy case to both file a timely proof of claim and a complaint within 30 days of the termination of the automatic stay.[3]

Three Circuit Courts of Appeal and other lower courts have applied Section 108(c) of the Bankruptcy Code to require litigation claimants to file both a timely proof of claim and a complaint within 30 days after the termination of the automatic stay

Section 108(c) of the Bankruptcy Code,[4] entitled “Extension of Time,” governs the extension of deadlines to file lawsuits for creditors whose statutes of limitations expired during the bankruptcy case. Section 108(c) provides:

Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—

(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case;[5] or

(2) 30 days after notice of the termination or expiration of the stay.[6]

Section 108(c)(2) provides an extra 30 days to file a claim if the claims' limitation period expired before the automatic stay was lifted. Unless the bankruptcy court grants relief from stay for a particular claim, in a typical chapter 11 case, the stay will remain in place until a plan is confirmed.[7]

The First, Second, and Eighth Circuit Courts of Appeal and the US District Court for the Eastern District of Pennsylvania each applied Section 108(c)(2) to disallow claims where the applicable statute of limitations expired during the bankruptcy case and the claimant (a) filed timely proofs of claim but (b) failed to file a complaint prosecuting the applicable action within 30 days of the termination of the automatic stay. For example:

• Bennet v U.S. Lines, Inc., 64 F.3d 62 (2d Cir. 1995): plaintiff Bennet (a) filed a proof of claim and (b) successfully moved for relief from stay during the defendant’s bankruptcy case to prosecute her claim. Thereafter, Bennett filed a complaint 58 days after obtaining relief from stay. The Second Circuit Court of Appeals upheld dismissal of the complaint and the underlying claim on the grounds that Section 108(c) provided only 30 days following relief from stay to file a complaint: “The result of counsel's action gave Bennett 30 days to file her complaint, even though the statute of limitations had expired nearly a year earlier. Regrettably, advantage was not taken of this 30-day window of opportunity, the complaint being filed 58 days after plaintiff had notice of the lifting of the stay.”[8]


• Mamer v Apex R.E. & T., 59 F.3d 780, 783 (8th Cir. 1995): Mamer’s personal injury claim’s statute of limitations expired during defendant Apex’s bankruptcy case. Claimant Mamer filed a timely proof of claim and entered into an agreement with Apex to mediate the claim. Mamer relied on that stipulation and failed to file a complaint within 30 days after the confirmation date because he contended that the “thirty-day post-confirmation deadline of § 108(c) is irrelevant because he was bound by his stipulation with Apex to continue mediation beyond that deadline.”[9] The Eighth Circuit Court of Appeals rejected that argument and disallowed Mamer’s claim as time barred on the grounds that Mamer failed to file a complaint prior to the expiry of the non-bankruptcy limitation period and within 30 days of the termination of the stay.


• McKinney v Waterman Steamship Corp., 925 F.2d 1, 6 (1st Cir. 1991): plaintiff McKinney filed a timely proof of claim asserting personal injuries against Waterman Steamship Corp, a debtor in a bankruptcy case. On appeal, the First Circuit Court of Appeals affirmed the disallowance of that claim because McKinney failed to file an action in state court until two and one-half years after the stay was lifted and 16 months after the limitations period had expired.


• Rhodes v C & G Excavating Inc.,1999 U.S. LEXIS 15828 at *4-5 (E.D. Pa. Sept. 29, 1999): Claimant Rhodes filed a timely proof of claim based upon injuries he allegedly received while working as a seaman on dredge owned by the debtor. Following confirmation of the plan, the debtor objected to the claim as, among other things, time barred because the claimant did not file a complaint within applicable three-year maritime statute of limitation and the 30-day extension under section 108(c) of the Bankruptcy Code. The court agreed and dismissed Rhodes’ claim under Section 108(c)(2).[10]

As set forth below, Judge Goldblatt discussed and distinguished each of the foregoing cases even though he found C&G Excavating to be “factually indistinguishable” from the case at bar.

Promise Healthcare: Background

In re Promise Healthcare Group, LLC, claimant Patrick Wassmann timely filed a $10 million proof of claim (Wassmann Proof of Claim) based on damages and injuries allegedly caused by the debtor’s alleged negligent care of Wassmann.[11] Due to the impending expiry of the applicable state law statute of limitations period during the bankruptcy case, Wassmann filed a petition in state court to extend that limitations period for ninety days, giving him until September 8, 2019 to file his lawsuit (Extension Petition).[12] On June 13, 2019, Wassmann filed a complaint in Florida State Court seeking damages against the debtor Promise Healthcare (Wassmann State Court Complaint).[13] Wassmann did not obtain relief from the stay from the bankruptcy court to file the Extension Petition or the Wassmann State Court Complaint.

The post-confirmation liquidating trustee filed a motion for summary judgment to disallow the Wassmann Proof of Claim on the grounds that it was time-barred under Section 108(c)(2). According to the liquidating trustee, (a) Wassmann violated the automatic stay by not obtaining bankruptcy court approval to file the Wassmann State Court Complaint, (b) the Wassmann State Court Complaint was therefore void ab initio, and, (c) as such, the claims under the Wassmann Proof of Claim were time-barred by the state statute of limitations because Wassmann did not file a valid complaint in state court within the applicable state law statute of limitations or within the 30 day extension to the limitation period under Section 108(c)(2).[14]

Promise Healthcare: Judge Goldblatt finds Section 108 inapplicable and instead applies Section 502 of the Bankruptcy Code to deny the motion to disallow the Wassmann claim

Judge Goldblatt denied the liquidating trustee’s motion for summary judgment.[15] In so doing, Judge Goldblatt analyzed the Wassmann claim under Section 502 of the Bankruptcy Code and held that the validity and allowance of a claim should be measured as of the petition date.[16]  As such, he ruled that a creditor who has filed a timely proof of claim is not required by Section 108 to initiate a complaint in a non-bankruptcy court to preserve its claim.[17]

According to Judge Goldblatt, Section 502 of the Bankruptcy Code mandates that the allowance of a claim must be determined as of the bankruptcy petition date:[18]

(a) A claim or interest, proof of which is filed under section 501 of this title is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.

(b) …if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount...

Judge Goldblatt reasoned that pursuant to Section 502, if a party in interest objects to a filed claim, the claim is allowed unless “such claim” falls under one of nine exceptions set forth in Section 502(b)(1)-(9), “the first of which being that the ‘claim is unenforceable against the debtor … under … applicable law.”[19] Judge Goldblatt further noted that “importantly, Section 502(b)’s preamble provides that a court “after notice and a hearing, shall determine the amount of such claim ...as of the date of the filing of the petition... .”[20]

Judge Goldblatt supported his analysis by posing the following question: “When 502(b)(1) states that a claim should be disallowed ‘if such claim is unenforceable against the debtor’ under non-bankruptcy law, does the term ‘such claim’ refer to the claim as of the time the Court rules on the claim objection (as the liquidating trustee contends) or the claim as of the petition date?” Judge Goldblatt answered that question in favor of the petition date by pointing to the language of the statute:

“Section 502(b)(6) provides that claim should be disallowed if ‘such claim is for unmatured interest.’” Because “[i]t is universally accepted. . . that Section 502(b)(2) is a ‘general rule disallowing post-petition interest’ . . . “the language and structure of Section 502 as whole makes it clear that the claims allowance process looks to the validity of a claim as of the petition date.”

In re Promise Healthcare Group, LLC, Case No. 18-12491 at 10-11.

Judge Goldblatt also rejected the liquidating trustee’s position as inconsistent with longstanding principles of bankruptcy law “and sensible bankruptcy policy” that require that all claims be determined as of the petition date.[21]  According to Judge Goldblatt, Section 502 provides for a “centralized mechanism by which bankruptcy courts resolve disputed and unliquidated claims that may be asserted against the bankruptcy estate.”[22] Under the Bankruptcy Code, this mechanism “equalizes competing legal rights – all potential creditors will have their right to payment reduced to a ‘claim’ as defined in Section 101(5), and all claims will be determined as of the filing of the bankruptcy petition.”[23] Accordingly, because Wassmann filed a timely proof of claim, Judge Goldblatt determined that the Wassmann Proof of Claim should be allowed as of the petition date without need to file a separate complaint in state court.[24]

In denying the liquidating trustee’s motion, Judge Goldblatt held that the liquidating trustee’s position creates problems that are otherwise solved by Section 502, namely that the need for claimants to file litigations in various non-bankruptcy courts defeats the centralized nature of the bankruptcy claims process before the bankruptcy court:

“In [the liquidating trustee’s] view, creditors whose claims are valid as of the petition date but have upcoming statutes of limitations would be required to seek stay relief to file lawsuits in state or federal courts outside of bankruptcy in order to preserve their right to payment. That reading of the Bankruptcy Code would thus operate to create one of the very problems that bankruptcy is intended to solve.”[25]

Judge Goldblatt holds that Section 108(c) is unrelated to the claim allowance/disallowance process

Judge Goldblatt distinguished the three Circuit Court cases and one district court case cited above that relied on Section 108(c) by looking to the different purpose of that section compared with Section 502. According to Judge Goldblatt, Section 108(c) “serves an important purpose in solving a different problem that is unrelated to claims allowance.”[26] In his opinion, section 108(c) applies where there is a claim against an individual chapter 7 debtor that would be nondischargeable under § 523(a)(2).[27] Section 108(c) enables that creditor to first recover its pro rata share under the chapter 7 case, and then proceed to collect the remainder of its claim through a non-bankruptcy litigation against the debtor:

“But without relief from stay, that action could not brought until after the conclusion of the chapter 7 case. The work done by Section 108(c) is that, if the statute of limitations would otherwise expire during the bankruptcy case, this extension of time permits the creditor to wait until after the bankruptcy case has concluded before bringing that non-bankruptcy litigation.”[28]

As a result, Judge Goldblatt declined to even follow the C&G Excavating case from the Eastern District of Pennsylvania, a court within the Third Circuit, which Judge Goldblatt found to be (a) “not factually distinguishable” from the case at bar but (b) “unpersuasive” in its reasoning.[29]

Promise Healthcare appeal

The liquidating trustee filed a motion for leave to appeal Judge Goldblatt’s decision directly to the Third Circuit. The Delaware District Court certified the appeal to the Third Circuit on the basis that the appeal presented a question of law as to whether a claimant’s cause of action is time barred when the claimant (i) files a timely proof of claim in the bankruptcy case but (ii) fails to file a complaint before the expiration of the applicable state law limitation period or before the expiration of the 30-day extension period available under Section 108(c).[30] The District Court further noted that neither the Supreme Court nor the Third Circuit has addressed whether the determination of a claim’s validity should be made as of the petition date pursuant to Section 502 (as held by Judge Goldblatt) or within the extended period under Section 108.[31]

If the bankruptcy court’s order is reversed on appeal, then the Wassmann claim would be disallowed because Wassmann did not file a timely complaint under Section 108(c).

Potential implications of reversal by the Third Circuit

If the Third Circuit reverses Judge Goldblatt’s order, claimants in bankruptcy cases in Delaware and other courts within the Third Circuit should consider the following:

• Litigation claimants should seek relief from the automatic stay in order to file a complaint in the applicable non-bankruptcy court prior and avoid the risk of the expiration of the extension period under Section 108(c).


• Alternatively, a litigation claimant can avoid unnecessary litigation costs by entering into a stipulation with the debtor whereby the parties agree that (a) the claimant can file its complaint in a non-bankruptcy court during the bankruptcy case but (b) such claim will be allowed or disallowed in the bankruptcy case.


• Litigation claimants who do not seek relief form stay during the bankruptcy case will need to diligently monitor the bankruptcy proceedings to ensure the 30-day extension period does not lapse.


• Absent a bankruptcy court order to the contrary, a litigation claimant should consider the filing of a proof of claim in the bankruptcy case as a necessary but not sufficient step to preserve its claims. It has become common for the bankruptcy court to enter an order confirming a plan before completing or even commencing a claims reconciliation process. Accordingly, litigation claimants will not be able rely on that process to obviate their need to file a complaint within the Section 108(c) extension period.

DLA Piper’s Global Restructuring practice is highly experienced in developing solutions for distressed companies and their stakeholders in all manner of in- and out-of-court restructurings, liability management strategies, finance, and litigation matters.

If you have any questions about this ruling or any restructuring-related matter, please reach out to the authors or your usual DLA Piper contact.[32]

[1] 11 U.S.C. § 108(c)(2).
[2] In re Promise Healthcare Group, LLC, Case No. 18-12491 (CTG) (Bankr. D. Del. 2023) [D.I. 2960] at 16.
[3] Robert N. Michaelson, Liquidating Trustee of the Promise Healthcare Group Liquidating Trust v. Patrick Wassmann, Misc. No. 23-255 (CFC) (Bankr. D. Del. 2024) [D.I. 7] at ¶ 12.
[4] 11 U.S.C. § 108(c).
[5] Since neither automatic stay provisions under Section 362 nor the extension provisions under Section 108 suspend a statute of limitations from running, the language in Section 108(c)(1) referring to "any suspension of such period" means those nonbankruptcy laws tolling periods such as minority or incompetency of a plaintiff. Grotting v. Hudson Shipbuilders, Inc., 85 B.R. 568, 569 (W.D. Wash. 1988).
[6] 11 U.S.C. § 108(c)(2) (emphasis added).
[7] 11 U.S.C. § 1129.
[8] Bennett, 64 F.3d at 67.
[9] Mamer v. Apex R.E. T, 59 F.3d at 783.
[10] Rhodes v. C & G Excavating Inc., 1999 U.S. LEXIS 15828 at *4-5 (E.D. Pa. Sept. 29, 1999)
[11] In re Promise Healthcare Group, LLC, Case No. 18-12491 (CTG) (Bankr. D. Del. 2023) [D.I. 2960] at 3.
[12] Id. at 4.
[13] Id.
[14] Id. at 5.
[15] Id. at 30.
[16] Id. at 9.
[17] Id. at 8-9.
[18] 11 U.S.C. § 502(a)-(b).
[19] Id.
[20] In re Promise Healthcare Group, LLC, Case No. 18-12491 (CTG) (Bankr. D. Del. 2023) [D.I. 2960] at 10.
[21] Id. at 11.
[22] Id.
[23] Id.
[24] Id. at 16.
[25] Id.at 14.
[26] Id. at 23.
[27] 11 U.S.C. § 523(a)(2)
[28] In re Promise Healthcare Group, LLC, Case No. 18-12491 (CTG) (Bankr. D. Del. 2023) [D.I. 2960] at 24.
[29] Id. at 22.
[30] Robert N. Michaelson, Liquidating Trustee of the Promise Healthcare Group Liquidating Trust v. Patrick Wassmann, Misc. No. 23-255 (CFC) (Bankr. D. Del. 2024) [D.I. 7] at ¶ 9.
[31] Id. at ¶ 11.
[32] DLA Piper represents the liquidating trustee, and the views expressed are of the authors alone.