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Banruptcy Stay Does Not Toll Time for Filing Renewal Affidavit on Judgment

June 14, 2014 by  
Filed under Blog

The intersection of the bankruptcy stay and the renewal of judgments in Arizona was unsettled until 2004. In that year, bankruptcy attorney Ronald Ellett successfully argued two cases that resulted in the definitive published opinions on this issue. The first case was before the the Arizona Supreme Court In re Smith, 101 P.3d 637, (Ariz. 2004).The second case was before the Ninth Circuit’s Bankruptcy Appellate Panel in Smith v. Lachter (In re Smith), 352 B.R. 702, (9th Cir. BAP 2006). The second case clarified and corrected the decision of the Arizona Supreme Court. These bankruptcy issued raised in Smith v. lachter were complex. Indeed, Bankruptcy Judge Redfield T. Baum was reversed three times, in three separate published decisions, for having mistakenly ruled against Mr. Ellett’s arguments on all three occasions. After several years of litigation, these cases established that the bankruptcy stay does not prevent a creditor from filing its mandatory affidavit of renewal. As a result, in Smith v. Lachter, the creditor’s claim was extinguished due to the failure of the creditor to timely renew its judgment. As a result of these published opinions, this legal issue is now settled. Under Arizona law, the renewal of an existing judgment does not constitute an execution of a judgment, but rather, is considered a ministerial action. In re Smith, 101 P.3d 637, 639 (Ariz. 2004). Pursuant to A.R.S. § 12-1551(A), a judgment creditor must execute on a judgment within five years after entry of judgment. If execution cannot occur within that time period, then a creditor can obtain an extension of time by either filing within ninety days before the end of the five-year period an affidavit of renewal pursuant to A.R.S. § 12-1612, Mobile Discount Corp. v. Hargus, 753 P.2d 1215, 1216 (Ariz. Ct. App. 1988), or by initiating an action as to the judgment at any time within five years after the date of the judgment. A.R.S. § 12-1611. “Under Arizona law, enforcement [of a judgment] is stayed and the time in which to enforce the judgment is tolled during the pendency of bankruptcy actions” and “any stay of the enforcement of the judgment, such as might be imposed by the filing of a supersedeas bond.” Lachter v. Smith (In re Smith), 101 P.3d 637, 639 (Ariz. 2004)(emphasis added). However, a judgment creditor’s inability to enforce a judgment during the initial or a subsequent statutory five-year period, whether because of a bankruptcy stay or other reasons, does not toll the deadlines imposed by A.R.S. § 12-1612 to file a renewal affidavit. Id.; see also Smith v. Lachter (In re Smith), 352 B.R. 702, 706 (9th Cir. BAP 2006). A renewal affidavit’s purpose is to notify interested parties of the existence and continued viability of a judgment. Lachter v. Smith (In re Smith), 101 P.3d 637, 639 (Ariz. 2004) Ergo, it serves no enforcement function. Id. Therefore, the automatic stay found in 11 U.S.C. 362 does not toll the time for filing a renewal affidavit. See In re Smith, 101 P.3d 637, 639 (Ariz. 2004) as clarified by Smith v. Lachter (In re Smith), 352 B.R. 702, 706 (9th Cir. BAP 2006). It is worth noting that other jurisdictions have also held that 11 U.S.C. § 362 does not stay the filing of a renewal affidavit. See, e.g., Morton, 866 F.2d at 564; Barnett v. Lewis, 170 Cal. App. 3d 1079, 1090, 217 Cal. Rptr. 80, 86 (1985); O’Lane v. Spinney, 874 P.2d 754, 756 (Nev. 1994) (citing with approval the holding in Morton); Barber v. Emporium P’ship, 800 P.2d 795, 797 (Utah 1990).

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