Articles Posted in Automatic Stay

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A California bankruptcy court recently ruled on a motion to lift the automatic stay in a Chapter 13 case by a company that purchased real property at a foreclosure auction. In re Richter, No. 6:14-bk-10231, mem. dec. (Bankr. C.D. Cal., Jan. 20, 2015). The purchaser sought to initiate an unlawful detainer proceeding, commonly known as an eviction, in order to take possession of the property. The debtor argued that he had a right of redemption under California law, which allowed him to recover the property by paying the amount owed to the lienholder. The court expressed sympathy for the debtor but ruled that his right of redemption had expired under both California law and the Bankruptcy Code.

The debtor owned a condominium in Palm Desert, California. Since it was part of a common interest development, the property was subject to covenants, conditions, and restrictions (CC&Rs) enforced by a homeowner’s association (HOA). When the debtor fell behind on assessments, the HOA commenced nonjudicial foreclosure. Under state law, a property owner has a 90-day right of redemption after the sale of a property in a nonjudicial foreclosure by an HOA. Cal. Civ. Code § 5715(b), Cal. Civ. Proc. Code § 729.035.

A trustee appointed by the HOA conducted a foreclosure auction in October 2013. The purchaser bought the property for $36,000, which more than covered the debtor’s $18,836 assessment arrearage. The foreclosure trustee notified the debtor of his 90-day right of redemption. On the last day of the redemption period, in January 2014, the debtor filed for Chapter 13 bankruptcy. According to the court, he intended to use the Chapter 13 bankruptcy plan to exercise his right of redemption. The HOA refused to accept his payments, however, arguing that the sale of the property was complete. The foreclosure trustee recorded the trustee’s deed in August 2014, perfecting the purchaser’s title. In October, the purchaser moved to lift the automatic stay.

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When a debtor files for bankruptcy under Chapter 7 or Chapter 13, an automatic stay takes effect that bars most legal actions against the debtor or the debtor’s property. Violations of the automatic stay can result in substantial liability for the debtor. The Ninth Circuit Court of Appeals affirmed a judgment awarding more than $27,000 in damages to a debtor for an automatic stay violation by a payday lender. In re Snowden, 769 F.3d 651 (9th Cir. 2014). The court also held that a conditional offer of settlement by the lender, which the debtor rejected, did not preclude an award of damages as authorized by the Bankruptcy Code, 11 U.S.C. § 362(k).

The debtor took out a $575 payday loan “to make ends meet for herself and her daughter.” Snowden, 769 F.3d at 654. This is a short-term loan secured by a post-dated check. She put a stop payment on the check before its due date and informed the lender that she was considering bankruptcy. The lender’s employees began calling the debtor multiple times at the hospital where she worked as a nurse. The calls reportedly continued even after she referred the lender to her attorney, and they began to affect her work performance. When she filed for Chapter 7 bankruptcy, she did not directly inform the lender but listed it as an unsecured creditor with a claim for $575.

About a month after filing for bankruptcy, the debtor noticed that her bank account was overdrawn by more than $800. She learned that the lender had cashed the check securing the payday loan, resulting in overdraft fees. This had a substantial emotional impact on the debtor, since “her finances had careened out of control at the moment when she thought she was finally getting them together.” Id. at 655.

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A bankruptcy court allowed Chapter 13 debtors to pursue an adversary claim against their loan servicer for unapproved fees. The debtors claimed that the loan servicer intentionally misapplied a lump sum payment intended to go towards their mortgage principal after the discharge. The court granted the debtors’ request for a preliminary injunction. In re Moffitt (“Moffitt I”), 390 B.R. 368 (Bankr. E.D. Ark. 2008) (PDF file). It dismissed the debtors’ non-Bankruptcy Code claims in two subsequent opinions, 406 B.R. 825 (Bankr. E.D. Ark. 2009) (“Moffitt II”) (PDF file) and 408 B.R. 249 (Bankr. E.D. Ark. 2009) (“Moffitt III”) (PDF file), but it allowed the remaining claims to proceed. The parties settled the dispute several months later.

The debtors filed a Chapter 13 petition in October 2004. They listed a first-lien deed of trust of $35,000 to their mortgage servicer, EverHome, which filed a proof of claim alleging a debt of over $36,000. It filed amended proofs of claim that progressively increased that number throughout 2005, claiming expenses like attorney’s fees and inspections. The debtors objected to the additional fees, but they also moved to settle and administer the case in order to use a personal injury settlement to pay off the Chapter 13 plan. Although the debtors wanted to continue to pursue the objection, the court ruled that it was moot and granted a discharge.

EverHome transferred the debt to America’s Servicing Company (ASC), which the debtors claim is an alter ego of Wells Fargo Bank, in late 2005. ASC submitted a payoff amount to the trustee of just under $10,000. In April 2006, the trustee paid that amount to ASC, and the debtors sent a personal check to ASC in the amount of $10,000, directing ASC to apply the funds to the mortgage principal. Instead, ASC applied the debtors’ payment to other fees, causing their mortgage “to go into complete disarray.” Moffitt I at 389. Continue reading

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California law allows for license suspension, including both driver’s licenses and professional licenses, for nonpayment of certain debts or other obligations. In some cases, a Chapter 7 or Chapter 13 bankruptcy can help an individual get his or her license reinstated by enabling him or her to catch up on payments more quickly or efficiently. Not all of these debts and obligations are subject to discharge in Chapter 7 or Chapter 13. Personal bankruptcy can still be a useful tool, however, for people whose financial difficulties leads to license suspension, which often leads to even more financial difficulties.

First, a bit of reassurance. Generally, only state agencies and courts have the authority to suspend a license for unpaid debts. Debt collectors, who might be collecting for private debt like unpaid credit cards, do not have any such authority. License suspension is only possible where state law has specifically authorized it. Under California law, this includes unpaid judgments for automobile accidents, nonpayment of state tax, and nonpayment of child support. Bankruptcy itself is not grounds for license suspension, since the Bankruptcy Code prohibits discrimination on the basis of a bankruptcy filing. 11 U.S.C. § 525.

Unpaid Judgments and Penalties under the California Vehicle Code

California law allows the Department of Motor Vehicles (DMV) to suspend a driver’s license for failing to satisfy a judgment resulting from an automobile accident. The DMV will typically reinstate a license upon payment of the judgment amount, or release by the creditor. It should also reinstate a license upon receipt of an order from a bankruptcy judge discharging the judgment debt. Continue reading

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A debtor sought to recover attorney’s fees from a creditor after successfully defending against its appeal of a ruling that it violated the automatic stay in the debtor’s Chapter 13 bankruptcy case. The bankruptcy court denied her motion, but the Bankruptcy Appellate Panel (BAP) reversed the ruling, holding that she was entitled to attorney’s fees as “actual damages” under 11 U.S.C. § 362(k)(1). The creditor appealed to the Ninth Circuit Court of Appeals, which affirmed the BAP’s ruling. In re Schwartz-Tallard, No. 12-60052, slip op. (9th Cir., Aug. 29, 2014). The court distinguished the case from a precedent case, Sternberg v. Johnson, 595 F.3d 937 (9th Cir. 2010), which held that attorney’s fees in similar circumstances were not “actual damages” under § 362.

The debtor filed for Chapter 13 bankruptcy in March 2007. The creditor, America’s Servicing Company (ASC), serviced the mortgage on the debtor’s home. It moved for relief from the automatic stay in April 2009 after it believed the debtor had fallen behind on mortgage payments. The debtor moved to reinstate the stay. At a hearing on May 13, 2009, at which ASC did not appear, the bankruptcy court granted the debtor’s motion. ASC proceeded with a foreclosure, however, and the home was sold at a trustee’s sale on May 20.

The court ruled in February 2010 that ASC had violated the automatic stay. It ordered ASC to put the property back in the debtor’s name, and to pay punitive damages and attorney’s fees. ASC appealed the ruling to the district court, which affirmed the bankruptcy court’s ruling. It remanded the question of attorney’s fees to the bankruptcy court, with instructions that the debtor prove the amount she spent or was charged. Schwartz-Tallard, slip op. at 6, n. 1, citing America’s Servicing Co. v. Schwartz-Tallard, 438 B.R. 313, 321 (D. Nev. 2010). Continue reading

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Vince Young, a National Football League quarterback, filed a petition for Chapter 11 bankruptcy in January 2014. Chapter 11 bankruptcy allows individuals or businesses to reorganize their debt payments. It bears some similarities to Chapter 13, although Chapter 13 is generally a better option for most individuals. Young reportedly filed the bankruptcy petition in order to stay efforts to collect a substantial judgment. He asked the bankruptcy court to dismiss the bankruptcy proceeding about two weeks after filing, stating that he had resolved the underlying collection dispute.

Young has been in the NFL since 2006. After playing for the University of Texas, he was drafted by the Tennessee Titans and played there for five seasons. He played for one season with the Philadelphia Eagles, and although he trained with the Buffalo Bills and the Green Bay Packers, he is not currently signed to a team. He reportedly made $34 million in his first six years, but ran into significant financial difficulties. During the 2011 NFL lockout, almost $2 million in loans were taken out in his name, which resulted in two lawsuits against him in New York filed by Pro Player Funding.

Pro Player Funding also filed an action in Houston, where Young resides, in 2012 to enforce any judgment obtained in the New York case. Young filed two appeals in Texas seeking to enjoin Pro Player Funding from collecting any judgment. An appellate court denied the injunction on December 17, 2013. Pro Player Funding obtained a turnover order from a Manhattan court the same day. On January 17, 2014, Young filed a Chapter 11 bankruptcy petition in Houston, which immediately stayed all collection action in Texas and New York. In re Young, No. 14-30400, petition (Bankr. S.D. Tex., Jan. 17, 2014). Continue reading

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A Chapter 13 debtor appealed a bankruptcy judge’s order granting relief from the automatic stay to a credit union, which sought to evict them after a foreclosure. The Bankruptcy Appellate Panel (BAP) for the Ninth Circuit affirmed the lower court’s order, finding that the foreclosure had been authorized during a prior bankruptcy proceeding. In re Alakozai, No. NC-12-1470, opinion (9th Cir. BAP, Oct. 2, 2013). The debtors had filed multiple bankruptcy proceedings in a relatively short span of time, the BAP found, and the credit union had obtained relief from the automatic stay in an earlier case based on a showing that the debtor was attempting to delay or hinder the foreclosure. It held that the bankruptcy court did not abuse its discretion by granting relief from the stay.

The filing of a bankruptcy petition stays most pending legal matters involving the debtors. Creditors and other interested parties may request that the court lift this stay for a specific purpose. With regard to actions affecting real property, a creditor can request relief from the stay based on a showing that the debtor is attempting to prevent the foreclosure through multiple bankruptcy filings. 11 U.S.C. § 362(d)(4)(B).

The debtors, a married couple, owned property in Dublin, California secured by a deed of trust. After the couple defaulted, the credit union recorded a default notice and scheduled a trustee’s sale. The debtors filed a Chapter 13 petition in December 2008, before the sale could occur. The court dismissed the case without confirming a plan the following May. The debtors filed three more bankruptcy petitions, one under Chapter 7 and two under Chapter 13, between January and November 2010. Continue reading

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Two debtors, a married couple, brought an adversary proceeding against a bank, claiming that it violated the automatic stay by continuing to prosecute a lawsuit in state court against a corporation in which they were the sole shareholders, by filing another lawsuit against a related corporation after they filed their bankruptcy petition, and by continuing various collection actions against them individually. The court granted the creditor’s motion to dismiss the adversary proceeding, finding that nothing prohibited the creditor from actions against the corporations, which were not parties to the bankruptcy. In re Licursi, No. 1:10-bk-26168 (Bankr. C.D. Cal., Jan. 17, 2014).

A complicated sequence of events led to the bankruptcy court’s January 2014 order. California Bank & Trust (CB&T) filed a lawsuit in Los Angeles County Superior Court against the debtors and Spectrum Glass & Aluminum, Inc. (Spectrum Aluminum), in May 2010. The debtors were the sole owners of Spectrum Aluminum. CB&T obtained a default against all three defendants in July 2010. The debtors filed for bankruptcy on December 28, 2010, triggering the automatic stay.

CB&T filed a notice of stay in the state court lawsuit in January 2011, then requested abstracts of judgment and entered the default judgment only as to the corporation. It obtained a nonsuit without prejudice of the lawsuit in September 2011. At various times during 2012, CB&T sought orders to appear against the husband debtor as the owner of Spectrum Aluminum, as well as against the wife in her capacity as CEO of Spectrum Glass & Mirror (Spectrum Mirror). It always removed them from the court’s calendar. In October 2013, CB&T filed a new lawsuit, only naming Spectrum Mirror as defendant. The debtors filed an adversary proceeding in bankruptcy court the following month for alleged automatic stay violations. Continue reading

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A federal judge sentenced a Chapter 13 debtor to fifteen months in prison in December 2013, following his conviction of one count of bankruptcy fraud in April. Federal prosecutors accused him of failing to disclose assets, including lease contracts on residential real property that he owned in Houston, Texas. U.S. v. Chaker, No. 4:12-cr-00168, indictment (S.D. Tex., Mar. 22, 2012). The purpose of the debtor’s failure to disclose the leases, the government claimed, was to defraud the property’s secured creditor, who had been preparing to foreclose on the property. The court, when pronouncing the sentence, reportedly noted the importance of the “reliability of those who petition for bankruptcy relief.”

The debtor, who resides in Beverly Hills, California and Las Vegas, Nevada, filed for Chapter 13 bankruptcy on March 6, 2007 in the U.S. Bankruptcy Court for the Southern District of Texas. According to the indictment, the debtor failed to disclose two details regarding his assets and liabilities. First, he had reportedly formed a limited liability company (LLC) in Nevada in 2005. He opened two business checking accounts for the company that year, and he registered it as a foreign LLC doing business in Texas in 2006. Second, the indictment stated that the debtor purchased residential real property in Houston, Texas in 2004, claiming on the loan application that he would use the property as his primary residence. He reportedly leased the property to others under two lease agreements in 2005 and 2006.

The indictment charged the debtor with one count of bankruptcy fraud under 18 U.S.C. § 157, alleging that he made “false or fraudulent representations” to the bankruptcy court and the trustee. He fraudulently failed to disclose “Income from Other Employment or Operation of Business,” it claimed, by omitting information about his interest in the LLC. He also failed to disclose the prior lease agreements on the residential property, and allegedly made a false representation to the court at a hearing on March 26, 2007, that he had not leased the property before January 2007. The indictment further alleged that the debtor sought to defraud the mortgage lender by using the automatic stay to postpone foreclosure, which the lender had scheduled for the same day the debtor filed his Chapter 13 petition. Continue reading

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A business owner in Maine recently took the unusual step of filing individually for Chapter 13 bankruptcy with the intention, according to local news coverage, of forestalling certain business liabilities. This includes a pending eviction brought by Oxford County against the business, Oxford Aviation, Inc. Prior to filing the bankruptcy petition, the business owner, James Horowitz, reportedly transferred all of the company’s assets to himself for a nominal fee. Several matters are now awaiting the court’s attention, including an effort to remand the eviction matter to state court and a declaratory judgment action regarding the company’s right to assign the lease.

According to the Bangor Daily News, Horowitz is the president and sole shareholder of Oxford Aviation, an aircraft maintenance company. The company leases a 40,000-square-foot property at Oxford County Regional Airport, including several hangars and offices. The county reportedly filed a forcible entry and detainer action, more commonly known as an eviction, in state court in late October 2013, alleging that the company breached multiple terms of its lease agreement. The company faces several other legal difficulties, as reported by the Daily News, including a lawsuit for allegedly defaulting on a $62,500 loan and a $423,000 default judgment in a lawsuit claiming negligent aircraft maintenance.

On November 12, 2013, Horowitz reportedly transferred all of the assets of Oxford Aviation, including the leasehold interest, to himself for $1. He filed for personal Chapter 13 bankruptcy the same day. His petition claimed that he has between fifty and ninety-nine creditors and $500,000 to $1 million in debt. In Schedule G, filed several weeks after the petition, he identified Oxford County and Oxford Aviation as parties to the lease agreement for the airport property. The Chapter 13 petition imposed an automatic stay halting the eviction case. The Daily News reported that a hearing had been scheduled in the eviction case on November 13, the day after he filed. Continue reading