Learn about business bankruptcy basics and earn CLE credit valid in ten states with this video, available here. The provider, namely LexVid, should give you one video for free. Here is the course description:
There are a number of complex issues to consider when representing a
business client in a bankruptcy. Join Reno Fernandez, San Francisco
commercial bankruptcy attorney, as he covers all the basics of a
business bankruptcy case. The program will focus mostly on corporate
Chapter 11 cases, which allows the business to continue to operate with
the goal or reorganizing and paying creditors. Mr. Fernandez will also
cover business Chapter 7 cases, which are an effective way to dissolve
and wind up if the business does not require a reorganization. Other
topics include discharge, the automatic stay, trustees, and many more.
Showing posts with label automatic stay. Show all posts
Showing posts with label automatic stay. Show all posts
Order for Relief From the Automatic Stay in Husband's Bankruptcy Case Enforced in Wife's Subsequent Case
In Alakozai v. Citizens Equity First Credit Union (In re Alakozai), 2013 Bankr. LEXIS 4380, NC-12-1470-PaDJu (9th Cir. BAP Oct. 2, 2013), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit ("BAP") affirmed a bankruptcy court order granting relief from the automatic stay to proceed with an unlawful detainer action against the debtor notwithstanding the filing of the sixth bankruptcy case involving her residence. The BAP also ruled that the lender’s prior foreclosure on the debtor’s real property during the fifth case did not violate the automatic stay because the lender’s order granting relief from the automatic stay in the fourth case (filed by her husband only) was effective in rem under Bankruptcy Code Sections 362(d)(4) and (20).
Debra Alakozai held a community property interest in certain real property encumbered by a promissory note in her husband's name secured by a deed of trust. Her husband defaulted on the note and a trustee’s sale was scheduled. Thereafter, Alakozai and/or her husband variously filed a total of six bankruptcy cases. The lender obtained relief from the automatic stay in the fourth case under Bankruptcy Code Section 362(d)(4) pursuant to an order providing that it was effective as to the property for 180 days. The lender recorder the order after the case was dismissed.
Alakozai filed her fifth case within the 180-day period, and later that day the lender obtained title to the property at trustee’s sale. The case was dismissed a month later, but Alakozai and her husband refused to vacate. The lender commenced an unlawful detainer action. Several months later, Alakozai and her husband filed the sixth case. The lender obtained relief from the automatic stay to prosecute its unlawful detainer action, and Alakozai appealed.
Alakozai argued that the bankruptcy court in the fourth case, which was filed by her husband, did not make the necessary findings of fact to support in rem relief. Therefore, she argued, the bankruptcy court's subsequent order in the sixth case was void. On the contrary, the BAP found that the prior order was effective when the fifth case was filed and Alakozai could not challenge the factual findings by collaterally attacking the unappealable and final order.
Bankruptcy Code Section 362(d)(4) provides that “if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved . . . multiple bankruptcy filings affecting such real property” and the creditor records the order, it “shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order." Bankruptcy Code Section 362(b)(20) provides that the automatic stay does not bar a lienholder from enforcing its lien if Section 362(d)(4) applies.
Alakozai argued that she was not a debtor in her husband’s bankruptcy case, in which the prior order was entered. However, the court ruled that an order under Section 362(d)(4) binds any party asserting an interest in the affected property, including "every non-debtor, co-owner, and subsequent owner of the property.”
Section 362(d)(4) was added to the Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consume Protection Act of 2005 ("BAPCPA") for the apparent purpose of curbing serial filings. It will be interesting to see whether the BAP's broad language aids that goal or gives rise to unintended consequences, such as frustrating the reorganization efforts of an arms-length buyer.
In re Gasprom: Foreclosure After Abandonment, Before Closure of Chapter7 Case, Violated Automatic Stay
In In re Gasprom, 500 B.R. 598 (9thCir. BAP 2013), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit ("BAP") held that a lienholder violated the automatic stay in bankruptcy by foreclosing on assets abandoned by the trustee before the corporate debtor's chapter 7 case was closed.
Following conversion of the case from chapter 11, the trustee moved to abandon the estate's chief asset, which was a defunct gas station with permitting and hazardous waste issues. The asset was fully encumbered by a lien. The bankruptcy court granted the motion over the debtor's objection (citing In re D’Annies Restaurant, 15 B.R. 828 (Bankr. D.M.N. 1981)) and noted that the effect of the abandonment would be to terminate the automatic stay. The lienholder foreclosed later that day, and the case was closed shortly thereafter.
Following conversion of the case from chapter 11, the trustee moved to abandon the estate's chief asset, which was a defunct gas station with permitting and hazardous waste issues. The asset was fully encumbered by a lien. The bankruptcy court granted the motion over the debtor's objection (citing In re D’Annies Restaurant, 15 B.R. 828 (Bankr. D.M.N. 1981)) and noted that the effect of the abandonment would be to terminate the automatic stay. The lienholder foreclosed later that day, and the case was closed shortly thereafter.
The debtor filed a motion to reopen the case so that it could set aside the foreclosure and recover for the alleged violation of the automatic stay. The court reopened the case but denied the motions in advance, ruling that upon entry of the abandonment order, the automatic stay no longer enjoined the sale, and that the court would annul the automatic stay sua sponte to the extent necessary.
The BAP reversed, holding that although the collateral left the estate upon abandonment, the automatic stay remained in effect with respect to property of the debtor under Bankruptcy Code Section 362(a)(5). The BAP declined to follow authorities holding that the automatic stay only protects the property of an individual debtor (and not a corporate debtor) following abandonment. Instead, the court followed authorities holding that abandonment returns property to the debtor nunc pro tunc as if no bankruptcy petition had been filed.
Actions Taken In Violation Of The Automatic Stay May Not Be As Void As You Think…
In Burkhart v. Coleman (In re Tippett), --- F.3d ---, 2008 WL 4070690 (9th Cir. Sept. 4, 2008), the Ninth Circuit held that Bankruptcy Code Section 549(c) protects a bona fide purchaser of real property where the Trustee failed to record notice of bankruptcy, even though the sale violates the automatic stay. The opinion serves as a warning to trustees to record the notice of bankruptcy where the debtor holds real property, and it confirms that the automatic stay may not apply to transfers of property initiated by the debtor under certain circumstances.
Mr. and Mrs. Tippett filed a voluntary Chapter 7 petition in May of 2001. They listed their homestead as having a value of $140,000, with two liens against it in the total amount of approximately $135,000. The Trustee did not record the petition or notice of bankruptcy with the County Recorder’s office. In November of 2002, the Tippetts sold their home to Seitu Coleman for $225,000 without obtaining approval from the bankruptcy court, and the Tippets received net proceeds of over $75,000. Coleman financed the purchase with two purchase money loans secured by deeds of trust. It was undisputed that Coleman was a bona fide purchaser of the property in that he had no notice of the bankruptcy.
The Trustee filed an adversary proceeding against the Tippetts, Coleman, and the lenders who held the deeds of trust, seeking to recover the sale proceeds, avoid the lenders' liens, and quiet title on the grounds that the sale violated the automatic stay under Bankruptcy Code Section 362 and 542. The Trustee also sought to revoke the Tippetts' discharge for knowingly and fraudulently selling an asset of the estate under Bankruptcy Code Section 727(d). The bankruptcy court ruled in favor of the Trustee. On appeal, the Bankruptcy Appellate Panel reversed and entered judgment in favor of Coleman, concluding that the Tippetts' unauthorized transfer of the residence to Coleman did not violate the automatic stay.
The Ninth Circuit affirmed the BAP decision and upheld the sale. The Court ruled that California's bona fide purchaser statute was not preempted by the Bankruptcy Code because it is consistent with the Bankruptcy Code’s policies of giving debtors a fresh start and equality of distribution of a debtor's assets among creditors. The court also ruled that the Bankruptcy Code provides a defense to bona fide purchasers against actions brought under Bankruptcy Code Section 549. In support of this conclusion, the court reaffirmed its controversial holding in Schwartz v. United States (In re Schwartz), 954 F.2d 569, 574 (9th Cir. 1992), that the automatic stay does not apply to transfers initiated by the debtor.
Mr. and Mrs. Tippett filed a voluntary Chapter 7 petition in May of 2001. They listed their homestead as having a value of $140,000, with two liens against it in the total amount of approximately $135,000. The Trustee did not record the petition or notice of bankruptcy with the County Recorder’s office. In November of 2002, the Tippetts sold their home to Seitu Coleman for $225,000 without obtaining approval from the bankruptcy court, and the Tippets received net proceeds of over $75,000. Coleman financed the purchase with two purchase money loans secured by deeds of trust. It was undisputed that Coleman was a bona fide purchaser of the property in that he had no notice of the bankruptcy.
The Trustee filed an adversary proceeding against the Tippetts, Coleman, and the lenders who held the deeds of trust, seeking to recover the sale proceeds, avoid the lenders' liens, and quiet title on the grounds that the sale violated the automatic stay under Bankruptcy Code Section 362 and 542. The Trustee also sought to revoke the Tippetts' discharge for knowingly and fraudulently selling an asset of the estate under Bankruptcy Code Section 727(d). The bankruptcy court ruled in favor of the Trustee. On appeal, the Bankruptcy Appellate Panel reversed and entered judgment in favor of Coleman, concluding that the Tippetts' unauthorized transfer of the residence to Coleman did not violate the automatic stay.
The Ninth Circuit affirmed the BAP decision and upheld the sale. The Court ruled that California's bona fide purchaser statute was not preempted by the Bankruptcy Code because it is consistent with the Bankruptcy Code’s policies of giving debtors a fresh start and equality of distribution of a debtor's assets among creditors. The court also ruled that the Bankruptcy Code provides a defense to bona fide purchasers against actions brought under Bankruptcy Code Section 549. In support of this conclusion, the court reaffirmed its controversial holding in Schwartz v. United States (In re Schwartz), 954 F.2d 569, 574 (9th Cir. 1992), that the automatic stay does not apply to transfers initiated by the debtor.
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