THE DISCHARGE INJUNCTION AND THE AUTOMATIC STAY CURRENT DEVELOPMENTS

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1 THE DISCHARGE INJUNCTION AND THE AUTOMATIC STAY CURRENT DEVELOPMENTS Recent Cases Dealing With the Automatic Stay Henry E. Hildebrand Chapter 13 Trustee Middle District of Tennessee In re DeSouza, 493 B.R. 669 (1 st Cir. BAP, 2013) The Automatic Stay is violated the domestic support exception does not apply unless the creditor s actions fit into one of the specific exceptions: 1. The establishment or modification of order for DSO; 2. Collection of DSO from property that is not property of the estate; or 3. Withholding from income that is property of the estate or property of the debtor. Here, the actions by the ex-spouse did not fit into the exceptions the creditor initiated contempt proceedings and sought incarceration for the debtor s failure to pay the DSO. This violates stay. In re Feingold, 730 F.3d 1268 (11 th Cir. 2013) A debt s dischargeability, standing alone, is not sufficient to establish cause for relief from stay. In re Iskric, 496 B.R. 355 (Bankr. M.D. Pa. 2013) Actions to enforce discovery disputes violate automatic stay. Contempt is not excepted from stay just because it looks criminal. Debtor did not respond to post-judgment discovery, resulting in the state court issuing a bench warrant and imposing incarceration. This would result in actual damages, award of attorney s fees, damages for the infliction of emotional distress, the assessment of punitive damages. In re Miller, 501 B.R. 266 (Bankr. E.D. Pa. 2013) The case covers a number of stay issues when the debtor s ex sought to ignore the bankruptcy and collect anyway: The creditor s action to compel selling of debtor s house by the ex was an action seeking to enforce property settlement, not collect support. The creditor s action to collect from the debtor s annuity to enforce a support award was an action to collect from property of the estate (other than the debtor s income) until time to object to exemptions passed at which time it was an effort to collect from property of the debtor. Cause existed to grant relief from the stay to permit the ex to collect from property of the estate the post-petition, ongoing support due to the ex. Cause did not exist to grant relief to collect pre-petition support provided for in 13 plan other than as provided in the plan. The question is not whether Ms.

2 Miller will be repaid the delinquent DSO, but rather which court will set the repayment terms. In re Sciarrino, 2013 WL (Bankr. M.D. Fla. 2013) Sending invoice for post-petition utility service did not violate the stay. Under Telfair v. 1 st Union Mortgage Corp., 216 F.3d 1333 (11 th Cir. 2000): Property acquired postpetition which is not necessary to fund plan is not property of the estate. The utility was seeking to recover from income that was not committed to fund the plan. In re Velez Arcay, 499 B.R. 225 (Bankr. D. P.R. 2013) Upon the filing of the petition, the automatic stay halted the creditor s foreclosure action, even if the foreclosure state lawsuit was filed only as a proceeding in rem. In re Stancil, 487 B.R. 331 (Bankr. D.C. 2013) Completion of a pre-petition foreclosure action after filing violates automatic stay even though the creditor had initiated the action prior to the filing and it was argued that the only steps remaining were to complete the foreclosure sale. In re Stephens, 495 B.R. 608 (Bankr. N.D. Ga. 2013) Failure to return a car that had been repossessed prior to the filing of the petition, after the creditor obtained knowledge of the bankruptcy filing, violated the automatic stay, warranting actual and punitive damages. The punitive damages would be fixed at double the amount of the scheduled debt. In re Murphy, 493 B.R. 576 (Bankr. D. Colo. 2013) It did NOT violate stay for a sheriff s sale to be conducted in the gap period between dismissal of a Chapter 13 case and the reinstatement of the case. In re Trailer, 2013 WL (Bankr. M.D. Ala. 2013) Failure of Troy University to provide an academic transcript to debtor because prepetition debt had not been paid violated the stay. This was willful violation of stay, justifying award of attorney s fees. In re Kenoyer, 489 B.R. 103 (Bankr. N.D. Ca. 2013) It does not violate the stay for a creditor to enforce a subpoena against debtor who had been served out of state court action. Here, subpoena was issued pre-petition and, had it not been modified, would have resulted in a stay violation. Debtor was subpoenaed to testify against co-debtors in state court pertaining to liability of co-debtors. In fact, debtor was never called to testify. The fact that state trial might mention debtor or his involvement in the transaction did not result in stay violations. No findings could be given preclusive effect. In re Leverette, 2013 WL (Bankr. S.D. Miss 2013) Bank has affirmative obligation to return property taken, post-petition, in violation of the stay. Debtor is not required to request turnover.... [T]he burden is on the creditor to reverse any such action taken in violation of the stay. 2

3 In re Long, 2013 WL (Bankr. E.D. La. 2013) A foreclosure/sheriff s sale against debtor and debtor s LLC was a technical violation of the stay because the debtor had been listed on the action, but because LLC was not in bankruptcy and was only entity on lease there was no reason to enforce the violation; the stay violation would have no impact on the case because the stay could be annulled by court. That is why Fifth Circuit held actions taken in violation of the stay were voidable, not void. In re Thomas, 497 B.R. 188 (Bankr. E.D. Pa. 2013) The case reiterates the well established principle that willfulness does not require that the creditor intend to violate the automatic stay provision, rather it requires only that the acts violating the stay be intentional.... [T]o prove a willful violation of the automatic stay, a plaintiff also must show that the creditor had knowledge that the automatic stay was in place. That would involve a deliberate act after learning of the bankruptcy. In re McKenzie, 737 F.3d 1034 (6 th Cir. 2013) Where stay relief is sought against individual debtor, 362(e)(2) allows the court to issue an order extending the stay without holding a preliminary hearing. Thus it was not error for the court to extend the automatic stay without holding a preliminary hearing upon the motion for relief by a creditor. Section 362(e)(1) is the section that requires a preliminary hearing. Also, the secured creditor seeking relief has the burden of proof to establish the validity of its security interest in order to pursue its request for stay relief. In re Yelverton, 493 B.R. 290 (Bankr. D.C. 2013) A mortgage creditor seeking relief from the stay in Chapter 7 case is not required to make an evidentiary showing that it had the right to foreclose; the creditor was not required to produce the note where trustee did not oppose relief. If the trustee did not see any reason for the stay to remain, there is no bankruptcy purpose to require proof. In re Wade, 501 B.R. 870 (Bankr. D. Kans. 2013) Upon rejection of lease in Chapter 13, the stay terminates as to the leased property but an action against debtor would not be permitted. Here, the rent-to-own creditor was upset that the rented property, a TV had been stolen and creditor wanted to go after the debtor for the value of property. By rejecting the rent-to-own contract, all damages for breach become pre-petition claims. In re Alakozai, 499 B.R. 698 (9 th Cir. BAP 2013) Upheld the applicability and effect of in rem order obtained in fourth bankruptcy case pursuant to 362(b)(20) against wife-debtor who was not a debtor in the fourth case. Solis v. Koresko, 2013 WL (E.D. Pa. 2013) An action by USDOL against several related entities for ERISA violations is excepted by the regulatory and administrative exception of 362(b)(4) because its actions were public in nature seeking to preserve a benefit for the public good and not pecuniary in nature seeking only the collection of damages. 3

4 In re Lyons, 489 B.R. 270 (Bankr. N.D. Ga. 2013) Actions taken in violation of the automatic stay are VOID rather than VOIDABLE (agrees with Second Circuit). In re Koger, 2013 WL (Bankr. S.D. Ill. 2013) Stay relief is not appropriate simply because an unsecured debt is nondischargeable. The bank was subject to the plan (which was confirmed to pay a dividend of 0%) despite its nondischargeable nature. In re Alem, 2013 WL (Bankr. D.C. 2013) Although it would violate the automatic stay... for Movants to subpoena the debtor in his capacity as a party-defendant to the Superior Court litigation, 362 does not bar litigants from serving a subpoena on and deposing a debtor in his capacity as a nonparty witness... In re Calderon, 497 B.R. 558 (Bankr. E.D. Ark. 2013) Actions to enforce the automatic stay are not subject to jury trials. The rights created by the stay are public rights. Following the dictates of Granfinanciera, a public right is where Congress, with valid legislative purpose, has created a right so closely integrated into a public regulatory scheme as to be appropriate to be enforced by an administrative body or a specialized court of equity (like a bankruptcy court). These public rights are not subject to a right to trial by jury. In re Greer, 498 B.R. 98 (Bankr. S.D. Miss. 2013) A stay violation is not willful when the creditor does not receive adequate notice of the filing. Thus, when debtor used an incorrect address ( forwarding order expired ), no sanctions were appropriate. In re Hafer, 2013 WL (Bankr. E.D. Va. 2013) The practice of continuing a debtor s interrogatories hearing [in aid of judgment] and not dismissing the summons once it is known that the debtor has filed for bankruptcy violates the automatic stay. In re Thomason, 493 B.R. 890 (N.D. Ga. 2013) Actions by homeowners association in sending letters and denying pool privileges violated the stay, but agents did not have knowledge adequate to establish willfulness. The stay does not extend to award damages to debtor s family and friends who had been upset when the homeowner s group denied access to the pool to a group of them. In re Mason, 527 Fed. Appx. 118 (3d Cir. 2013) Debtor, who was not a party to a lease, would not be protected by the automatic stay from detainer action or action for trespass. 4

5 In re Stephens, 2013 WL (Bankr. N.D. N.Y. 2013) This case reconciles the apparent inconsistency between 521(a)(2) and 362(h)(1), holding that the stay does not automatically terminate until 30 days following the Meeting of Creditors rather than 30 days after the filing of the case. The two failures a failure to perform, and a failure to file a statement of intent have different impacts and it makes no sense to lift the stay before the trustee has an opportunity to examine the debtor at a Meeting of Creditors. In re Maness, 497 B.R. 326 (8 th Cir. BAP 2013) It does not violate the stay for a creditor to discuss Missouri s lien fraud statute with prosecutor not attempting to recover debt. Here the creditor indicated that it did not have an interest in recovering its debt when visiting the prosecutor. He wanted to make certain that the actions would not occur to others in the future. The Extension of the Automatic Stay under 362(c)(3) In re Reswick, 446 B.R. 362 (9 th Cir. BAP 2011) When a debtor files a second petition within a year of the dismissal of a prior case, the automatic stay terminates in its entirety, that is, as to the debtor, the debtor's property, and property of the estate, on the 30th day after the second petition date. In re Jumpp 356 B.R. 789 (1st Cir.BAP 2006) Section 362(c)(3) which terminates the automatic stay on the thirtieth day after the filing of a debtor's second bankruptcy petition terminates the stay only with regard to the debtor and property of the debtor, not with regard to property of the estate. In re McLemore, 2013 WL (Bankr. M.D. Ala., July 17, 2013) A debtor seeking to obtain an extension of the stay pursuant to 362(c)(3) must file the motion and obtain an order extending the stay within 30 days. Once the stay has terminated by operation of 362(c)(3), there is NOTHING that allows court to impose the stay. In re Rodriguez, 487 B.R. 275 (Bankr. D. N.M. 2013) Stay would not be extended if debtor cannot establish that the plan itself is proposed in good faith. The debtor failed to accomplish that where plan sought to discharge debts resulting from the debtor s misappropriation of retirement funds. In re Dyer, 489 B.R. 637 (6 th Cir. BAP 2013) Obtaining an extension of the automatic stay is not a precondition to obtain confirmation of a Chapter 13 plan. Here, debtor did not seek extension of stay. The absence of a stay does not per se constitute an absence of good faith, but practitioners should be warned that though a confirmed plan is binding on creditors, the confirmed plan provides no substitute for the stay s broad power. 5

6 In re Whitescorn, 2013 WL (Bankr. D. Ore. 2013) Even though repeat filers lodged a motion to extend the stay pursuant to 362(c)(3) within 30 days of the filing of their petition, failure of the court to hear the matter within 30 days renders the court powerless to extend the stay. Debtor waited 29 days to make the request. The stay terminates as to all property of the debtor or the estate. (Follows Reswick) In re Mayberry, 2013 WL (Bankr. D.S. Tex. 2013) The burden of proof is on debtor to demonstrate by clear and convincing evidence, that second filing is in good faith. The testimony of the debtors that their financial condition had changed was not adequate. The debtors should present more convincing evidence than their own testimony of their enhanced ability to support a plan. In re Suber, 2013 WL (Bankr. S.D. Tex. 2013) The party that is opposed to an extension of the stay has the burden to demonstrate that the presumption of 362(c)(3) applies. In re Weil, 2013 WL (D. Conn. 2013) Hearing on 362(c)(3) motion to extend the stay must be held and resolved within 30 days of petition being filed; and the stay that terminates is only partial only with respect to the debtor and the debtor s property. (Disagrees with Reswick) St. Anne s Credit Union v. Ackeu, 490 B.R. 141 (D. Mass. 2013) The stay that terminates under 362(c)(3) terminates in its entirety as to all interests of the debtor including property of the estate. (Agrees with Reswick) In re Brown, 2013 WL (Bankr. E.D. Va. 2013) A stay cannot come into being if the debtor is not eligible under 109. When the debtors voluntarily dismissed their earlier case after a motion for relief had been filed, the actions by the creditor that might have been a stay violation had the debtors been eligible could not violate the stay. The Imposition of the Automatic Stay Under 362(c)(4) In re Silveira, 2013 WL (Bankr. D. Mass. 2013) No harm, no foul where the mortgage creditor had pursued foreclosure after the filing of the petition. The conduct of the creditor cannot violate the stay where the debtor had filed a third case after two prior cases had been pending during the previous year. In re Jean, 508 Fed. Appx. 939 (11 th Cir. 2013) The provisions of 362(c)(4) which prevent the stay from ever arising are triggered not when two prior petitions have been filed within a year but whether two have been pending during the previous year. 6

7 The Impact of the Discharge Injunction under 524 In re Englert, 495 B.R. 266 (Bankr. W.D. Pa. 2013) There is no private cause of action to enforce the discharge injunction (agreeing with the Third, Ninth, and Sixth Circuits). Rather the violation of the discharge injunction is a civil contempt proceeding which enforcement is backed up by 105. To remedy a violation of the discharge injunction, a party should bring a motion for contempt; filing of an adversary is not required. In re Mona han, 497 B.R. 642 (1 st Cir. BAP 2013) If plan is not clear enough, then it cannot violate 524 to collect priority tax obligation, which is not paid. Although Espinosa established that the confirmed plan is binding, if the plan is to result in the discharge of the priority taxes, then the plan must be clear enough to put the taxing authority on notice of the proposed result. In re Faulkner, 2013 WL (Bankr. C.D. Ill. 2013) That debtor completed plan and obtained discharge did not require creditor to release its lien when there was a non-filing co-owner - co-debtor on the obligation and the Chapter 13 plan had bifurcated the claim and, though the secured claim had been fully paid, had failed to pay the entire obligation in full. In re McLean, 2013 WL , (Bankr. M.D. Ala. 2013) It was a violation of the discharge injunction of 524 for GreenTree to file a proof of claim in debtor s subsequent case. Damages, including attorney s fees, would be appropriate. In re Martin, 491 B.R. 122 (Bankr. E.D. Ca. 2013) A lien is terminated and is rendered void upon completion of a Chapter 13 plan and payment of the secured claim as found by the court under 506 even if the secured claim is $0. In re Guenot, 2014 WL (Bankr. D. N.J. 2014) Court will apply the same standards for damages under 524 violations as it would for violations of 362. In re Parham, 2013 WL (Bankr. E.D. Tenn. 2013) The exclusive remedy for pursuing the IRS for a discharge injunction is 26 U.S.C rather than 524. To obtain damages against the IRS for a violation of the discharge, debtors must exhaust administrative remedies. 7

8 In re Houlik, 481 B.R. 661 (10th Cir.BAP 2012) The accounting to determine whether 524(i) has been violated comes at the end of the chapter 13 plan after all plan payments have been made, not during the case. If a debtor discovers during the chapter 13 case a creditor's internal accountings not crediting payments as specified in the plan, 524(i) provides no immediate remedy. Indeed no remedy is needed until completion of the plan, at which time the creditor must true-up its accounting to reflect that payments were applied in compliance with the plan. In re Pompa, 2012 WL (Bankr.S.D.Tex.,2012) The willful failure to credit payments received under a plan constitutes a violation of the discharge injunction under 524(i), regardless of whether the debt at issue was discharged. 8