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Court Addresses Grounds for Granting Relief from Automatic Stay in Chapter 7

The Ninth Circuit affirmed an order establishing eligibility for relief from the automatic stay in a Chapter 7 case, finding that the copy of the promissory note presented by the bank met the requirements of the Federal Rules of Evidence. In re Griffin, No. 12-60046, slip op. (9th Cir., Jun. 26, 2013). The automatic stay provisions of the Bankruptcy Code generally stop legal proceedings and collection actions against the debtor while the case is pending. The court’s order in the present case only gives the bank the opportunity to argue the merits of lifting the automatic stay.

In most bankruptcy cases, an “automatic stay” takes effect upon the filing of the petition. 11 U.S.C. § 362(a). It prevents the filing of most types of lawsuits against the debtor, enforcement actions for judgments that predate the bankruptcy petition, and the creation or enforcement of liens against the debtor’s property. It also prohibits setoffs of any debts owed to the debtor prior to filing the petition. Legal proceedings that are not subject to the automatic stay include family cases, such as divorce, paternity, and child or spousal support, except for the division of marital property; and most tax proceedings. The automatic stay remains in effect until the court closes or dismisses the case, or the court discharges debts in an individual Chapter 7 case. Other events may result in a lift of the stay, although they depend on the circumstances of the individual case.

In Griffin, U.S. Bank moved for relief from the automatic stay in order to enforce a promissory note. It presented what the court called a “second-generation copy” or a copy of a copy, of the promissory note. Griffin, slip op. at 3. The copy of the note included a copy of a certification placed by a mortgage company. The bank filed a declaration with the copy of the note stating that it had the original in its files. The Chapter 7 trustee objected to the copy of the note, arguing that it did not meet the requirements of the Rules of Evidence to establish “prudential standing.” Id.

Both the bankruptcy court and the appellate panel rejected the trustee’s argument and ruled that the note was acceptable. The Ninth Circuit agreed, holding that “a duplicate of a duplicate is a duplicate” with the meaning of the evidence rules. Id. The court noted, however, that its order only gave the bank the ability to present the merits of lifting the stay to the bankruptcy judge. A court may lift an automatic stay upon the motion of a creditor if the creditor can establish cause, including the “lack of adequate protection” of its interest in the debtor’s property; or if the creditor can demonstrate that the debtor does not have equity in certain property, and the property “is not necessary to an effective reorganization.” 11 U.S.C. § 362(d); In re Johnson, 756 F.2d 738, 740 (9th Cir. 1985). The Griffin court noted that the bank only needed to “establish a colorable claim” to obtain relief from the automatic stay. Griffin, slip op. at 3, quoting In re Veal, 450 B.R. 897, 914-15 (B.A.P. 9th Cir. 2011).

Bankruptcy offers relief for many individuals who do not have enough income to pay their debts, offering them a way to restructure their bills, or even discharge their debts completely. Bankruptcy attorney Devin Sawdayi has helped clients through the bankruptcy process in the Los Angeles area for the past sixteen years. To schedule a free and confidential consultation, contact us today online or at (310) 475-9399.

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