GENERAL:
What is the Automatic Stay?
When
a bankruptcy is filed a federal restraining order called the
automatic stay immediately stops any trustee sales,
foreclosures, garnishments, lawsuits or repossessions against
the debtor and the debtor's property by any creditor, collection
agency, or government entity. It is contempt of this
federal restraining order to attempt to collect money, evict the
tenant, garnish wages or complete a trustee's sale, foreclosure
or repossession without first obtaining permission from the
bankruptcy court. This permission is called an Order for
relief from the automatic stay.
Contempt of
the automatic stay can be punishable by a very large fine.
How Does the Creditor file a Motion for Relief from the
Automatic Stay?
A Motion for Relief from
the automatic stay or a "stay order" is obtained by first
filing a Motion, Notice and Certificate of mailing with the
court and noticing the proper parties. The Debtor has
an opportunity to file a response. If a response is
filed a hearing will be held. If no response is filed
an Order, Certificate of No Objection must be filed with the
Court. The Court will most likely sign the Order.
Once the signed order is received the creditor is free to
proceed with the action that they requested in the Motion
and that was granted in the Order.
Now
that a bankruptcy has been filed what do I do first?
Order a
copy of the debtor’s bankruptcy schedules or check with the clerk’s
office to verify that your name and debt has been listed to ensure receipt of
notices. This should be done at the Bankruptcy Court where the case was
filed. A creditor should
review the schedules filed by the debtor, noting whether the creditor's claim (what is owing to
the creditor) was properly designated as secured or unsecured and listed
in the accurate amount. It should also be noted whether the debtor
disputes the claim or lists it as un-liquidated or contingent. Any errors
can be rectified by filing a proof of claim, if a claim was not listed on
the debtor’s schedules, the creditor must file a proof of claim by the
court deadline or the claim will be disallowed and the creditor will not
receive any monies if there is to be a distribution of funds.
Do I receive notice of
the Bankruptcy? Section 342 requires that all creditors
receive notice of the bankruptcy in order for the full restraining
action of the automatic stay to become effective. The debtor is to
list all addresses provided by the creditor within the 90 days before
the bankruptcy was filed, and/or any other address used by the creditor
in another bankruptcy. Section 342(c) Again, this is new law and I
would not advise the creditor to ignore any notice, written or
otherwise. Once the creditor receives notice of the bankruptcy
they must cease all attempts to contact the debtor or seize property,
without obtain permission from the bankruptcy Court. There are
monetary penalty for ignoring this prohibition. Section 343(g) and
362(k).
Do
your homework.
Carefully check all of the loan and security documents to ensure
that they are complete and that all necessary steps have been taken to
perfect liens on any collateral securing the obligation. This step is
extremely important and will determine the strength of a secured
creditor’s position in the case. Section 506 describes how the value of a
secured claim is determined. Although curing deficiencies
post-petition may be a violation of the automatic stay, nevertheless it is
essential to be aware of any problems.
Section 547(c)(3) & (e) gives the secured creditor no more
than 30 days after the debtor receives possession of
property or transfer is made to perfect the creditor's lien.
What
is a proof of claim and why should I file one?
File a
proof of claim. It is the
creditor’s proof of claim that will govern unless specifically objected
to by the debtor.
In a Chapter
7 no-asset case, proofs of claim need not be filed. There will not be any
distribution of funds to any unsecured creditors.
A no-asset is a case where all the assets of the Debtor were protected by
law (exemption
property). The majority of all chapter 7 cases involving
individuals are no-asset
cases.
In all other
Chapter 7 cases and Chapter 13 cases, a creditor must always file a proof
of claim to participate in any distribution.
In a Chapter
11 case a proof of claim is not required if the claim is accurately listed
in the schedules and is not scheduled as disputed, contingent or
un-liquidated.
What
is a creditor's meeting?
Shortly after a bankruptcy is filed, creditors will receive notice
of an initial meeting of creditors (Section 341, Meeting of Creditors) to
be held at the Office of the United States Trustee.
You may attend the Section 341, Meeting of Creditors, but are not
required.
This meeting provides the creditor a opportunity
to ask the debtor a few questions regarding its claim, its collateral,
other claims against the debtor, the debtor’s plans for its bankruptcy
case and any other aspects of its financial affairs. This is not an
opportunity to interrogate the Debtor.
This is a good time to reveal to the Trustee (the person conducting
the meeting) any inconsistencies the creditor has discovered in the
schedules. Make sure to be able to
support any statements. Either the
creditor or its counsel can attend the meeting.
What if I am owed alimony/maintenance or child support?
The 2005 changes to the Bankruptcy Code greatly favor
anyone owed child support or alimony/maintenance (called
"domestic support obligations" or "DSO"). There is no
automatic stay on the collection of any DSOs from property
that is not property of the estate 362(b)(2)(B).
Also, the legislative history of the new law and Section
Section 522(c)(1) makes it clear that all property owned by
the debtor can be liquidated to pay DSO debt. The
Bankruptcy Trustee even has obligations to the DSO claimant.
Section 704(c).
How
can I complete my trustee's sale/foreclosure?
If a creditor wants its collateral out of the bankruptcy completely
a Motion for Relief from the Automatic Stay should be filed early in the
case, forcing the debtor to deal with the problem head on. Normally a
hearing is scheduled in approximately 30 days on “lift stay” motions.
Without an Order lifting the stay the creditor is prohibited from
completing their trustee's sale or foreclosure.
What
if I am a landlord?
(1) Residential real property or personal property:
Chapter 7 - The debtor/trustee has 60 days from filing the bankruptcy to
either accept or reject the lease. If the lease is accepted then rents must be brought current.
Section 365(p(2) If the
lease is not accepted within within the 60 days then it is
automatically deemed rejected. Unfortunately,
despite the fact that the lease has expired the landlord still cannot take
any action against the debtor or his personal property without filing a
motion for relief. Therefore,
it is wise in a lease to file a motion for relief immediately
upon the debtor filing their bankruptcy.
Chapter 11, 12 or 13 - trustee/debtor may assume or reject lease at any
time before the confirmation of the Plan Section 365(d)(2) and 365(p)(3)
(2)
Non-residential real property - trustee must assume within
120 days of the filing of the bankruptcy or order confirming
Plan, court can extend for additional 90 days. Section
365(d)(4). See 503(b)(5) previously assume lease, then
rejected - possible administrative claim.
-
Section
362(b)(22) indicates that there is no automatic stay, so
long as the landlord obtained a judgment for possession
of residential property prior to the filing of the
bankruptcy.
-
Section
362(c)(3)(A) indicates that the automatic stay may
terminate 30 days after filing the bankruptcy with
respect to any lease, if that debtor had a prior
bankruptcy (7, 1 or 13) pending in the last 12 months.
-
Section
362(c)(4)(A)(i) No automatic stay if debtor filed two or
more cases in last 12 months.
-
Beware -
this is new law and may "bite the landlord in the a_ _".
Until the law is settled I highly recommend obtaining a
comfort order as described in 362(j).
-
The
landlord may not use the filing of a bankruptcy as
grounds for terminating a least 365(e)(1)
-
Trustee
may assign the lease, despite non-assignment clauses
Section 365(f).
How
does the creditor ask the debtor questions?
You can ask the debtor questions at the creditors meeting
(see above), or Bankruptcy Rule 2004 permits a creditor to take the deposition of
the debtor and inquire into all aspects of its financial affairs. The
scope of the examination is broad and should be taken advantage of to
obtain information.
Can I
object to the discharge of my debt?
Look for a basis to object to the discharge of a particular debt
under Sections 523 or 727. Creditors have only 60 days from the
date of the initial meeting of creditors to file suit to declare their
debts non-dischargeable on the basis of a false financial statement. It is very difficult for a creditor to win a non-dischargeable case
and normally the creditor will not receive its attorney's fees/costs for
bringing the action.
What is a reaffirmation
agreement? After a bankruptcy is filed, but before the
discharge is entered, the secured creditor, or landlord, could request
the debtor sign a new contract "reaffirmation agreement". This new
contract has the exact terms as the original, Section 524(c) and (k)
delineates several documents, disclosures and procedures that must be
followed by the creditor in obtaining this new contract. It must
be approved by the Court in order to be binding on the debtor. It
is most likely no debtor's attorney will sign the reaffirmation
agreement because 524(k)(5)(B) requires that the debtor's attorney
certify that the debtor will be able to make the payments. This is
not only ludicrous, but how could anyone certified anyone else's ability
to pay a future debt. This is also new law and few, if any,
creditors will be able to follow the complicated procedures.
