{"id":1201,"date":"2021-10-14T00:11:08","date_gmt":"2021-10-14T00:11:08","guid":{"rendered":"http:\/\/www.fremont-bankruptcy-attorney.com\/blog\/?p=1201"},"modified":"2022-04-01T00:07:21","modified_gmt":"2022-04-01T00:07:21","slug":"you-do-not-have-to-immediately-dismiss-a-state-court-lawsuit-if-the-defendant-files-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/2021\/you-do-not-have-to-immediately-dismiss-a-state-court-lawsuit-if-the-defendant-files-bankruptcy\/","title":{"rendered":"You Do Not Have To Immediately Dismiss A State Court Lawsuit If The Defendant Files Bankruptcy"},"content":{"rendered":"\n

By Ryan C. Wood<\/a><\/p>\n\n\n\n

This issue comes up all the time.  What I always hope is the creditor or\nplaintiff just dismisses the state court lawsuit without prejudice upon the\nfiling of the bankruptcy petition.  The automatic\nstay goes into effect stopping any and all collection activity including\nlawsuits.  It just saves time and money\nfor all parties.  Of course it is not that\nsimple and I will discuss this issue in more detail below.  The important part is continuing status conferences\nor just maintaining the status quo and not dismissing the state court lawsuit\nonce the defendant files for bankruptcy protection is not a willful violation\nof the bankruptcy automatic stay.  A\nrecent Ninth Circuit Bankruptcy Appellate Panel decision addressed this\nissue.  See Jerome E. Perryman v. Karen Dal Pogetto, BAP No. NC-21-1036-BFS, Bk.\nNo. 19-10253 (9th<\/sup> Cir. BAP 2021)<\/strong><\/p>\n\n\n\n

“Continuances like these keep the matter against the\ndebtor ‘on hold’ consistent with the stay; they do not advance the matter in\nthe creditor’s favor.” <\/p>\n\n\n\n

See In re Welsch, 602\nB.R. 682, 686 (Bankr. N.D. Ill. 2019)<\/strong> (holding that continuances in a\nprepetition domestic relations proceeding did not violate the automatic stay)<\/p>\n\n\n\n

See In re Cobb, 88\nB.R119, 120 (Bankr. W.D. Tex. 1988)<\/strong> (holding that a status hearing does not\nviolate the automatic stay because it does not move the case forward to a\njudicial determination).<\/p>\n\n\n\n

Just Maintaining The\nStatus Quo In The State Court Lawsuit Not Willful Violation of The Automatic\nStay<\/strong><\/p>\n\n\n\n

I really do not see the utility in continuing to have status\nconferences in a state court case that is dead or soon to be dead.  Each status conference requires a\npre-conference statement be filed and then only thing to be communicated is the\nstate court lawsuit is stayed until further notice.  It would make sense to then order the\nplaintiff to only schedule a status conference in the event there is no longer\na stay in the bankruptcy case.  For some\nreason this does not always happen.  The\nonly reason I can come up with is the plaintiff\u2019s attorney wants to incur the\ntime and bill their client.  The thing is\nmore often not an attorney for the plaintiff has no interest in saving time and\nmoney.  The state court attorney that\nfiled the lawsuit just got the rug pulled out from under them.  They may very well want to continue to appear\nfor status conferences and have to file preconference statements before every\nconference.  They want to bill their\nclient for that so \u2026\u2026. <\/p>\n\n\n\n

It Does Unnecessarily\nIncrease Expenses<\/strong><\/p>\n\n\n\n

It is difficult enough for most bankruptcy attorneys<\/a> to get paid for their time without complications.\u00a0 So anything that increases the time I have to spend to get the job done is not good.\u00a0 This is one of those issues.\u00a0 I quote a client a fee for their case with the hope certain things play out as I plan and the amount I quoted is an amount I can make money on.\u00a0 That is the deal.\u00a0 When a creditor and\/or their attorney choose to not dismiss the pre-bankruptcy state court lawsuit I have to spend additional time dealing with and explaining to my client what is going on and why, why a status conference statement continues to be filed in the state court case or why there continue to be status conferences.\u00a0 It is just so much simpler and cheaper for the plaintiff to dismiss the state court lawsuit without prejudice.\u00a0 If the defendant bankruptcy filer does not receive a discharge in their bankruptcy case the plaintiff\/creditor can file the lawsuit again.\u00a0 Or even better file a notice of stay of proceedings.\u00a0 In California this is judicial council form CM-180.\u00a0 If a defendant\/debtor has made an appearance in the state court litigation under California law the defendant\/debtor has the duty to file the notice of stay of proceeding.\u00a0 Plaintiffs rarely if ever file a notice of stay of proceedings in the state court case.\u00a0 <\/p>\n\n\n\n

So in the Chapter 7 case upon entry of the order of discharge\nthe state court lawsuit must be timely dismissed given the underlying claim is\nin fact legally discharged.<\/p>\n\n\n\n

In a Chapter 13 case things get more complicated given a\ndischarge is not received until after completion of the Chapter 13 Plan.  That could be as long as five years after the\ncase is filed.  So in theory for five\nyears a plaintiff could request the state court keep scheduling status\nconferences until the Chapter 13 Plan is complete and a discharged\nentered.  This is a common practice for\nforeclosure sale dates.  Upon the filing\nof a bankruptcy case a pending foreclosure sale of real property is stayed or\nstopped.  <\/p>\n\n\n\n

Chapter 7 Case Versus\nChapter 13 Case <\/strong><\/p>\n\n\n\n

As I began to discuss above there are differences whether the bankruptcy case filed is Chapter 7 or Chapter 13.\u00a0 In Chapter 7 bankruptcy the debtor will most likely receive their discharge in 3 to 4 months after the petition is filed.\u00a0 So the state court case can only be an issue for this short period of time even if not dismissed.\u00a0 So one status conference is held or continued while the Chapter 7 case is still pending. \u00a0No big deal and this does not substantially increase bankruptcy attorneys<\/a> time and expenses.\u00a0 If the state court law is not dismissed upon entry of the debtor\/defendant\u2019s discharge then at some point it has to be a willful violation of the automatic stay.\u00a0 In a Chapter 13 bankruptcy filing the Chapter 13 Plan is usually either 36 months or the maximum 60 months.\u00a0 There can be five years for status conferences and status conference statements to deal with?\u00a0 Potentially yes when the state court lawsuit is not dismissed.\u00a0 Even of the notice of stay of proceeding is filed the state court could still choose to have periodic status conferences.\u00a0 The entire point is to be ready to go in state court if for some reason the Chapter 13 case is dismissed.\u00a0\u00a0 Some Chapter 13 cases are filed to stop foreclosures or state court lawsuits temporarily with no intent to actually confirm a Chapter 13 Plan of Reorganization.\u00a0 These case usually use the minimum documents, or a skeletal petition, to get the case started.\u00a0 If a skeletal petition is filed then it is unclear whether the case will continue and the petition completed.\u00a0 In this case it is perfectly reasonable to not dismiss the state court lawsuit unless the petition is completed and then a Chapter 13 Plan is confirmed or approved by the Court.\u00a0 In a Chapter 13 case the end of the rode for creditors should be when a Chapter 13 Plan is confirmed or approved.\u00a0 After that the debtor\/defendant need only complete the plan to receive their discharge so why not dismiss the state court lawsuit at this point?\u00a0 Well, the debtor\/defendant has not completed the Chapter 13 Plan and received their discharge.\u00a0 This is the, \u201cSo you say\u2019 in I got a chance\u201d syndrome. \u00a0\u00a0At the off chance that the Chapter 13 case is dismissed the state court lawsuit is still there to be continued. <\/p>\n","protected":false},"excerpt":{"rendered":"

By Ryan C. Wood This issue comes up all the time.  What I always hope is the creditor or plaintiff just dismisses the state court lawsuit without prejudice upon the filing of the bankruptcy petition.  The automatic stay goes into effect stopping any and all collection activity including lawsuits.  It just saves time and money […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[38],"tags":[126,20,232],"_links":{"self":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1201"}],"collection":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/comments?post=1201"}],"version-history":[{"count":1,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1201\/revisions"}],"predecessor-version":[{"id":1202,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1201\/revisions\/1202"}],"wp:attachment":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/media?parent=1201"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/categories?post=1201"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/tags?post=1201"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}