Category Archives: Automatic Stay and Bankruptcy

If The Person or Company I Sued Filed Bankruptcy Can I Continue My State Court Lawsuit?

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The greatest grant of power to the bankruptcy court is the automatic stay stopping any and all collection activity including lawsuits. As soon as the petition for bankruptcy is filed the automatic stay takes effect. Section 362 of the Bankruptcy Code governs the automatic stay and relief from the automatic stay to continue collection activity with the bankruptcy court’s permission. So what circumstances need to exist to obtain relief from the automatic stay and continue prosecution of a state court lawsuit?

What Is The Automatic Stay?

The automatic stay among other things, prohibits creditors from continuing to prosecute prepetition litigation against the bankruptcy filer. § 362(a)(1); see also In re Conejo Enterprises, Inc., 96 F.3d at 351. This aspect of the automatic stay protects both the debtor and the debtor’s creditors. The entire point is to not allow one creditor to continue collection to the detriment of another creditor. The assets of the bankruptcy filer, once a case is filed, if any assets, are to be distributed equally to creditors at the time the case is filed.

Grounds For Relief From The Automatic Stay To Continue State Court Lawsuit

This issue arises quite a bit under many different circumstances. The most common lawsuit that exists at the time a bankruptcy case is filed is breach of contract lawsuits. Rarely will a breach of contract case satisfy the requirements for relief from stay to continue. Relief from the automatic stay can be obtained for “cause.” The Bankruptcy Code unfortunately does not define what “cause” is though. Courts have had to interpret circumstances and create factors to evaluate. The Ninth Circuit uses the Curtis factors. See In re Curtis, 40 B.R. 795, 799–800 (Bankr. D. Utah 1984).

The Curtis factors consist of the following twelve nonexclusive factors:

(1) Whether the relief will result in a partial or complete resolution of the issues;
(2) The lack of any connection with or interference with the bankruptcy case;
(3) Whether the foreign proceeding involves the debtor as a fiduciary;
(4) Whether a specialized tribunal has been established to hear the particular cause of action and whether that tribunal has the expertise to hear such cases;
(5) Whether the debtor’s insurance carrier has assumed full financial responsibility for defending the litigation;
(6) Whether the action essentially involves third parties, and the debtor functions only as a bailee or conduit for the goods or proceeds in question;
(7) Whether the litigation in another forum would prejudice the interests of other creditors, the creditors’ committee and other interested parties;
(8) Whether the judgment claim arising from the foreign action is subject to equitable subordination under Section 510(c);
(9) Whether movant’s success in the foreign proceeding would result in a judicial lien avoidable by the debtor under Section 522(f);
(10) The interests of judicial economy and the expeditious and economical determination of litigation for the parties;
(11) Whether the foreign proceedings have progressed to the point where the parties are prepared for trial, and
(12) The impact of the stay on the parties and the “balance of hurt.”

The burden of proof on a motion to modify or for relief from the automatic stay is a shifting one. To obtain relief from the automatic stay, the bankruptcy attorney and party seeking relief must first establish a prima facie case that “cause” exists for relief under § 362(d)(1). Once a prima facie case has been established, the burden shifts to the debtor to show that relief from the stay is unwarranted. If the\ movant fails to meet its initial burden to demonstrate cause, relief from the automatic stay should be denied.

Unfortunately there are not clear guidelines for what constitutes a prima facie case given the analysis is on a case by case basis. A party’s production of enough evidence to allow the fact-trier to infer the fact at issue and rule in the party’s favor. See Black’s Law Dictionary (10th ed. 2014); see also In re Planned Sys., Inc., 78 B.R. 852, 860 n.7 (Bankr. S.D. Ohio 1987).

Congress’ legislative comments provide their desire to permit an action to proceed to completion in another tribunal may provide . . . cause” for stay relief, and “it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere.” H.R. Rep. 95-595, 341, as reprinted in 1978 U.S.C.C.A.N. 5963, 6297

The bottom line is bankruptcy attorneys need to be aware that the bankruptcy court’s focus on whether the continuation of the state court lawsuit screws up the administration of the bankruptcy estate. In some circumstances insurance is liable for any damages if the lawsuit is successful. Therefore, none of the assets of the bankruptcy estate are at risk either way. So why not let the lawsuit continue?

Why Continue With State Court Lawsuit?

To get a judgment and hopefully paid on the judgment. The most common lawsuit that exists at the time a bankruptcy case is filed is breach of contract lawsuits. Rarely will a breach of contract case satisfy the requirements for relief from stay to continue. There are other types of issues though that can continue and not disrupt the administration of the bankruptcy estate.

If You Are Having A Problem With Your Home Loan Payment Call a Bankruptcy Attorney

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One of the most frustrating parts of my job is over and over again talking to people that file Chapter 13 bankruptcy cases to stop a foreclosure or eviction without proper legal advice from an actual bankruptcy attorney. By the time they speak to me there is usually too much water under the bridge for me to get involved and actually obtain them relief under the Bankruptcy Code they are entitled to. I say entitled to because the Bankruptcy Code is the law. You just have to follow it and get relief. Most skeleton Chapter 13 bankruptcy petitions should never have been filed to begin with.

Five Steps To Help Prevent Getting Scammed

These five steps cannot guarantee you will not get scammed, but they will limit your risk to getting scammed, losing your house and paying too much for the services provided to you.

1. Never ever wait until the last minute to start getting information; the problem did not come up overnight, so the solution will not come overnight either….
2. Make sure the person helping you signs the documents filed with the court; not you;
3. Only do business with someone that is local in your area and not hundreds of miles away;
4. Only do business with someone you have actually met in person and they have an office you can walk into if you want;
5. Google the phone number, fax number, email address, name of person or business name you are dealing with … basically Google each and every bit of identifying information you are given . . . most likely someone has already complained about them and Google will find it for you.

The Automatic Stay is a Jewel to be Coveted, Not Abused

The automatic stay is the backbone of the bankruptcy process and is the single most important and precious jewel to be coveted, not abused. Section 362 of the Bankruptcy Code provides the very lengthy law of how the automatic stay is implemented. A general description is the automatic stay stops almost all collection activity by creditors to give the bankruptcy filer breathing room to figure things out and reorganize or discharge their debts according to the Bankruptcy Code. That includes lawsuits, repossession, foreclosure, wage garnishment, levies, phone calls, letter and on and on. The automatic stay is the most powerful tool for a Bankruptcy Attorney to help people or businesses in financial distress. There are many limits in the automatic stay and for purposes of this article I will focus on the people filing their own cases with advice from the wrong people. What I find is multiple bankruptcy petitions filed by people trying to save a house more often than not. The first petition filed for relief they receive an unlimited automatic stay. There are no timing restrictions as long as the case remains open and not dismissed. This is what everyone should want, the bankruptcy case, whether Chapter 13, Chapter 7 or some other chapter of the Bankruptcy Code, to progress properly and the bankruptcy filer is not in jeopardy of the automatic stay not being in place. The single best way to ensure this is retaining an experienced bankruptcy attorney to file your case. If your home is in jeopardy do not trust a realtor or some other non-bankruptcy professional to help you.

Danger of Multiple Bankruptcy Filings

What I see over and over again with bankruptcy filers getting bad information is there case is just dismissed for not filing the proper documents in the beginning or not timely filing the proper documents after the case is filed. What the unscrupulous realtor, attorney or company will do is tell you or give you the basic forms to file a skeleton bankruptcy petition to obtain the automatic stay. That includes the voluntary petition, statement of social security number, creditor matrix and most likely an application to pay the $310 court filing fee in payments. The really horrible people will not even tell you about the application to pay the court filing fee in payments and make you waste the entire $310 even though they know the case will just be dismissed. They know the case will be dismissed because the forms described above are all they are going to help you with. That is it. You will have 14 days from when the court enters an order for you to file the rest of the documents to actually complete the petition. So the bankruptcy filer is now representing themselves and has only filed the basic forms to get the case started and does not know what to do next…… The bankruptcy filer will have paid whatever the unscrupulous person charge, usually well over a thousand dollars or more, plus the court filing fee of $310 and the Chapter 13 bankruptcy case is dismissed usually within three weeks.

If your first case is dismissed for some reason and you file a second case within a year you only get a 30 days automatic stay unless the stay is extended within that 30 days. There is no guarantee the court will extend the automatic stay and if a creditor objects to the extension it is even less likely the automatic stay will be extended. The third case filed within a year gets absolutely no automatic stay unless the automatic stay is imposed. Again, there is no guarantee the court will impose the automatic stay.

Required Credit Counseling Course Completion Prior to Filing a Bankruptcy Case

Another trap that realtors and unscrupulous people do not tell the bankruptcy filer is that they must complete the credit counseling course prior to filing for bankruptcy. The credit counseling only takes a few hours to complete and should cost less than $10.00 to complete. Skeleton Chapter 13 bankruptcy petition after skeleton bankruptcy petition is filed without the bankruptcy filer completing the credit counseling course prior to the filing of the case. I am a Bankruptcy Attorney that has either filed or been involved in literally thousands of bankruptcy cases and I only know of one or two circumstances in which the court allowed someone to take the credit counseling course after the bankruptcy case was filed or waived the requirement entirely. Since 2005 BACPA changes to the Bankruptcy Code, Section 109(h)(1) requires the completion of credit counseling within the 180-day period prior to the filing of the petition. Section 109(h)(3) provides a temporary exemption from that requirement if the bankruptcy filer submits a certification that: (i) describes exigent circumstances that merit a waiver of the requirements of [section 109(h)(1)]; (ii) states that the bankruptcy filer requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services referred to in [section 109(h)(1)] during the 7-day period beginning on the date on which the debtor made that request; and (iii) is satisfactory to the court. Section 109(h)(4) provides a total waiver if the Court determined, upon notice and hearing, that the debtor is unable to complete the credit counseling requirement due to incapacity, disability, or active military duty in a military combat zone. If you have in jeopardy of losing your home just complete the credit counseling course before filing the bankruptcy case and do not play around with attempting have the court give you more time or waive the requirement. It is just not worth it.

Do Not Fall For the Mortgage Litigation Scam

The mortgage litigation scam is only a ploy for criminals to get around the laws making it a criminal act to take money upfront to do a loan modification and a ploy to get around only charging you $150 as a bankruptcy petition preparer. I keep writing about this and it keeps happening. I do not know what the solution is. I try and educate people to enforce their rights and apparently they do not take my advice. Or there are just more and more of these unscrupulous people replacing the ones that go away. If you missed mortgage payments and owe thousands and thousands of dollars because you did not make the mortgage payments rarely are there issues for you to litigate. Especially if you are a consumer and this is regarding your home. We keep finding people in the Bay Area doing business with businesses in Southern California to litigate mortgage issues that appear to be purely scams. If you are litigating a mortgage problem that is legitimate you should not be directed to file a skeleton bankruptcy petition that you sign and file yourself. That makes no sense. When an attorney takes your money to do something they are supposed to sign and file the documents on your behalf because they are representing you and take on the liability for their work. That is how it is supposed to work. Also, why do business with someone that is hundreds of miles away that will most likely never give you your money back when you figure out it was a scam? Are you going to sue them for the $1,000 – $4,000 you gave them already? I seriously doubt it and I have yet to see it.

Can My Social Security Benefits Be Garnished or Levied From My Bank Account?

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The short answer is yes it is possible, but rare depending upon the circumstances. Your social security benefits are general exempted from garnishment and levy by normal creditors and possibly the state you live in. In California, the State of California does not levy on your social security benefits. Your creditors also cannot garnish your social security benefits or levy on your bank account that contains your social security benefits. A creditor can still sue you and obtain a judgment to enforce against you, but how will they enforce the judgment is the question.

The Internal Revenue Service Will and Can Absolutely Levy on Your Social Security Benefits

Please see 26 U.S.C. Section 6334(c) regarding property exempt from levy and the IRS’s ability to enforce unpaid taxes. Section 6334(c) provides reference to Section 207 of the Social Security Act. Section 207 provides: (a) The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law. (b) No other provision of law, enacted before, on, or after the date of the enactment of this section, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section. (c) Nothing in this section shall be construed to prohibit withholding taxes from any benefit under this title, if such withholding is done pursuant to a request made in accordance with section 3402(p)(1) of the Internal Revenue Code of 1986 by the person entitled to such benefit or such person’s representative payee.

Section 3402(p)(1) more or less treats social security payments as payment made by an employer as wages, which can be garnished and levied on in a bank account. The path to garnishment or ability to levy by the Internal Revenue Services is a twisted one, but nonetheless, the IRS can garnish social security benefits and levy upon social security benefits held in a bank account under certain circumstances.

If Your Only Income is Social Security Benefits You are Generally Considered Judgment Proof

If you owe a debt that is unsecured, that means there is no collateral securing the repayment of the debt, a creditor will have to sue you in state court and obtain a judgment to force repayment of the debt incurred. If your only income is social security benefits and you do not own real property, a house or raw land, then the options to enforce the judgment are very limited. Thus, the term judgment proof is described for this situation. A creditor can obtain a judgment against you, but how can the judgment be enforced? If you seek the counsel of a bankruptcy attorney regarding your debts be sure to let them know your only income is from social security. This should come out during a standard consultation but you never know. Make sure they know.

Some People That are Judgment Proof Still Choose to File Bankruptcy and Discharge Their Eligible Debts

If you are behind on your payments to unsecured creditors you know that the phone calls start relatively quickly after missing a payment and the letters demanding payment start relatively quickly too. Every now and then we have a client come in with income that is only social security. We inform them that they are for the most part judgment proof as described above. Some choose to file bankruptcy and discharge their eligible unsecured debts and others do not. For most they just want to move on with life and not worry about debts hanging out there to worry about. Everyone is different though. It is truly up to you what you believe is right for you. Filing for bankruptcy protection should stop the harassing phone calls and letters in the mail. As soon as the bankruptcy case is filed the automatic stay becomes effective stopping any and all collection activity. Once you receive a discharge in your case your creditors are barred from attempting to collect on a discharge debt incurred prior to the date the bankruptcy case was filed. Every now and then a creditor attempts to collect a debt after discharge and they can be held in contempt of court and sanctioned for this impermissible behavior.

Damages for Violation of Automatic Stay in the Ninth Circuit

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The general rule is that once you file for bankruptcy protection you should be free from creditor harassment and collection activity. This is because once you file for bankruptcy protection there is an automatic stay in place. This automatic stay stops any and all collection activity including creditor calls, letters, wage garnishments, repossession, foreclosure, levies, and/or continuation or start of any lawsuit in an attempt to collect a debt. The automatic stay is one of the most powerful tools in the bankruptcy arsenal. But what happens if a creditor ignores the automatic stay and continues to try to collect a debt from you anyway? What rights do you have?

This is what happened in the case In The Matter of Rupanjali Snowden (No. 13-35291, 9th Circuit Court of Appeals, September 2014). In this case, Ms. Snowden took out a payday loan from Check Into Cash of Washington (“CIC”) in the amount of $575. She was unable to make the payment and advised CIC that she was thinking of filing for bankruptcy and provided her bankruptcy attorney’s contact information to them. Despite having this information, CIC would constantly contact Ms. Snowden at work (she is employed as a nurse at a hospital). Every time she heard her name over the intercom she thought she was being called regarding an emergency with her daughter and became very stressed. Ms. Snowden filed for bankruptcy protection shortly after. CIC was listed as an unsecured creditor in the bankruptcy petition and therefore received notice of the bankruptcy case. A little over a month after her bankruptcy filing, CIC cashed her post-dated check causing Ms. Snowden’s bank account to become overdrawn and charged additional bank fees as well. Ms. Snowden became panicked and was crying and feeling miserable. Her bankruptcy lawyer filed a motion for sanctions against CIC for violation of the automatic stay, seeking return of the funds, overdraft fees, damages for emotional distress, punitive damages, and attorneys’ fees and costs. CIC disputed the fact that they violated the automatic stay. Ms. Snowden offered to settle the case for $25,000 which CIC rejected. CIC proposed to pay her $1,445, which Ms. Snowden rejected. The bankruptcy court found that CIC willfully violated the automatic stay and awarded Ms. Snowden $12,000 for emotional distress, $12,000 in punitive damages, $575 for the loan amount, $370 in bank fees, and $2,538.55 in attorney fees, totaling $27,483.55. CIC appealed the case to the district court. The district court remanded back to bankruptcy court to determine emotional distress damages and reevaluate punitive damages based on change in emotional distress damages. The bankruptcy court did not change its judgment after reconsideration. CIC appealed the case again and Ms. Snowden cross-appealed.

The ninth circuit upheld Ms. Snowden’s emotional distress award and punitive damages. The court also rejected CIC’s argument that the attorney fees stopped accruing once CIC offered to settle the case with Ms. Snowden for $1,445. The court indicated that CIC never admitted to the violation of the automatic stay and therefore the violation of the automatic stay was not cured. The court determined the proper date the violation of the automatic stay ended on December 10, 2009, when the bankruptcy court determined that the automatic stay was violated. Of course, Ms. Snowden would not receive all of the attorney fees up to that date. She would only receive the fees that are related to curing the stay violation itself. Since some of the attorney fees were related to recovering damages, those would be disallowed.

This case provides a guideline of what damages can be obtained when there is a violation of the automatic stay under these circumstances. As with each case, however, the rulings are heavily dependent on the specific circumstances of each case. You have to provide facts to prove you are eligible for actual damages, emotion distress, punitive damages, attorney fees and other damages. Willful violations of the automatic stay are a very serious matter and should not be taken lightly. Without the automatic stay being followed the entire bankruptcy process would break down.

Is A Car Loan Company Violating The Automatic Stay If They Disable My Car While I Am In Bankruptcy?

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Do you know anyone that has a disabling device in his or her car or do you yourself have a disabling device in your car? These devices are showing up in more and more states. The disabling device is installed in your car when you purchase a car, most likely at dealerships that act as the finance company as well. The dealerships normally install these devices on buyers who have low credit scores to protect the dealership/lender’s investment. These disabling devices act as an anti-theft device but also have GPS capabilities. What normally happens is that the consumers who purchase the car will have to pay on time each month to get a code from the lender. This code will allow the buyers to keep the car running another month. If the buyer misses a payment the lender will disable the device and the buyer will not be able to start the car and the GPS will provide the lender with the location of where to pick up the car to repossess it. This sounds incredibly dangerous. What if you were driving in the middle of the freeway and your car is disabled? If you have one of these devices on your car you need to know what your rights are after you file for bankruptcy.

In the case of In re Hampton (Hampton v. Yam’s Choice Plus Autos, Inc.), 319 B.R. 163 (Bankr. E. D. Ark. 2005), Toni Hampton purchased a car from Yam’s Choice Plus Autos, Inc. (“Yam’s”). There was a PayTeck device installed on the car. Ms. Hampton thought that it was only an anti-theft device and only learned that she would need a new code to start the car each month after she made her first payment. She made her payments on time and had no issues with her car. She filed for Chapter 13 bankruptcy protection on October 8, 2002. Ms. Hampton’s Chapter 13 plan included payments to the lender for her car. Her plan was confirmed and she made her Chapter 13 payments on time. After she filed for bankruptcy Ms. Hampton indicated she was barely able to get her car working for more than 2 weeks at a time. In the beginning, her bankruptcy lawyer’s employee tried to call Yam’s to get the correct codes. Yam’s indicated Ms. Hampton would need to call in to get the code. Ms. Hampton called in every month to get the code but most of the codes were incorrect and her car was shut off. It made her constantly late for work and there were times when she had to get rides from co-workers and friends and family because her car just would not start. Yam’s was aware of the issues but did nothing to help Ms. Hampton. The bankruptcy court in this case concluded that Yam’s violated the automatic stay. Under 11 U.S.C. §362(a)(3) filing bankruptcy acts as a stay of “any act… to exercise control over property of the estate…” Installing a device in a car which prevents the bankruptcy filer from starting the car is an exercise of control over the estate property which violates the automatic stay. The court awarded Ms. Hampton damages she incurred during this period but did not award punitive damages. The court clarified that while Yam’s violated the automatic stay in this situation, the existence of the disabling device would not in itself violate the automatic stay if Yam had taken proper precautions and provided Ms. Hampton with the correct codes every month. If there were issues with the device itself, Yam’s should have fixed it.

In a similar case, In re Crawford (Crawford v. Credit Acceptance Corporation), 2008 WL5427713 (Bankr. S.D. Ill. December 2008), Ms. Crawford’s finance company repossessed her car. She filed for Chapter 13 bankruptcy and the car was returned to her but she started having problems with her car immediately after because of the malfunction of the disabling device on her car. She sued the finance company for violation of the automatic stay for not repairing the disabling device and the courts agreed with her. The court held that the finance company violated the automatic stay because they failed to ensure the car “operated free from any interference from the disabling device.”

So the bottom line is this: you have the right to drive your car free from worry that it will stop at any time and to also drive your car without having to worry that your car will not start so long as you continue making your payments on time either on your own or through your Chapter 13 plan. If your lender deliberately provides you with the wrong start codes or does not help you if there is a malfunction of the disabling device they are violating the automatic stay and your bankruptcy lawyer will be able to file a motion or adversary proceeding for violating the automatic stay.