Page 13 - John Hundley 2011

Sharp Thinking

No. 47 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. May 2011

Creditors Proceed – And Sometimes Do Nothing –

At Their Peril When Bankruptcy “Stay” Applies

By John T. Hundley, Jhundley@lotsharp.com, 618-242-0246

Creditors who believe that the automatic stay imposed by the United States Bankruptcy Code (11
U.S.C. §§ 101 et seq.) merely preserves the status quo can be in for rude awakenings, several recent
court decisions demonstrate.

In one, a bankruptcy judge found the creditor to be in violation of the
stay for having a pending case set for a six-month status hearing. In
another, the bankruptcy judge found a creditor to be in violation of the
stay for not affirmatively causing the discontinuance of withholding under
a wage garnishment order. In yet another, the creditor was said to have
violated the stay merely by having an appraisal conducted.

The decisions demonstrate the breadth of the stay and the
liberality of courts’ opinions enforcing it.

In In re Hall-Walker, 445 B.R. 873 (Bankr. N.D. Ill. 2011), the debtor agreed in her divorce
proceeding to refinance the marital home but failed to obtain the refinancing, leaving her ex-husband
still liable on the previous mortgage. When she fell behind in payments, he sought a rule to show
cause why she should not be held in contempt of court. She responded by filing bankruptcy. Noting
the automatic stay, the divorce-court judge ordered that no action on collection be taken while the
stay was in effect, and continued the matter for status hearing six months hence.

In ruling that even the mere setting of the status hearing violated the stay, the court noted that the
statute creating the stay (11 U.S.C. § 362(a)) says that it “operates as a stay … of … the
commencement or continuation … of a judicial … proceeding … that was or could have been
commenced before the [bankruptcy], … or to recover a claim against the debtor that arose before the
[bankruptcy]” (emphasis added). Citing Eskanos & Adler, P.C. v. Leetien,
309 F.3d 1210 (9th Cir. 2002), the court said § 362(a) “operates to stay
the continuation of all judicial proceedings which ‘includes the
maintenance of collection actions filed in state court.’” Rejecting
claims that in merely continuing the status hearing the husband “was not
attempting to collect a debt”, the court said the contempt hearings were
continued “for the ultimate purpose of ensuring that the mortgage
arrearage was paid by the Debtor”, and that was sufficient. The husband
was ordered to pay $5,000.

●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●
Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
advice on your particular situation, contact a Sharp lawyer at the phone number or one of the addresses provided on page 2 of this newsletter.