Archive for November 2nd, 2013

Bankruptcy Stay Prevents ANY Activity in State Court Foreclosure Cases

In the foreclosure universe that exists in Florida courts in 2013, judges often take it upon themselves to set foreclosure cases for trial.  Case Management Conferences (CMCs) are the precursor for trial, a hearing for the purpose of setting a case for trial.  Many homeowners want to avoid these trials and the CMCs which precede them.  With Florida judges loathe to grant continuances, it may feel impossible to do so.  This is one instance where bankruptcy can be so valuable – not as a substitute for foreclosure defense, but in addition to it.

If a homeowner files bankruptcy right before a trial, CMC, or whatever hearing is scheduled in the pending foreclosure case, that court proceeding must be cancelled under the “automatic stay” provisions of the bankruptcy code.  This “stay” typically lasts weeks, sometimes months, occasionally more.  As a result, nothing can take place in the state court foreclosure lawsuit (for so long as the bankruptcy stay is in effect).  No matter how much the bank or the judge may want the case to proceed, federal law prohibits it.

In recent months, I’ve seen Florida judges react to bankruptcy filings by scheduling CMCs.  The judges’ rationale is clear … “if the homeowner is going to file bankruptcy to prevent/delay trial, then I want a CMC to take place in 60 days to see if the stay is still in effect and, if not, set trial.”  As a result, homeowners and/or their counsel are forced to come to state court and attend a CMC, often when a bankruptcy stay is in place.

The state court judge may think this is innocent, but I’m convinced this is wrong.  Even if the judge’s intent is simply to inquire if a bankruptcy stay is still in effect, that CMC should not take place.  Such CMCs happen frequently in state courts throughout Florida, but they shouldn’t.  But don’t take my word for it – check out the ruling of this Tampa bankruptcy judge.  This language from the Order is particularly interesting:

By operation of 11 U.S.C. § 362(a), the automatic stay came into effect on September 28, 2012, when Mr. Hanna filed a petition for Chapter 13 relief. A suggestion of bankruptcy was filed in the pending state court foreclosure case. Notwithstanding this notice, matters continued to be set in the foreclosure case, including what is denominated as a case management or status conference.

The automatic stay prohibits the continuation of any judicial proceeding against the debtor that was commenced prior to the bankruptcy filing. The fact that the state court plans to conduct a “Case Management Conference” or a “Status Conference,” as opposed to the adjudication of a substantive motion, does not change this Court’s ruling.  When the automatic stay under 11 U.S.C. § 362(a) is in place, even administrative matters cannot take place.

Debtor and his counsel cannot be required to attend hearings in the face of the stay, as that creates a burden the statute is designed to prevent. While this Court appreciates the desire of the state court to be informed as to matters that effect the administration of that court, nonetheless, such proceedings place an additional burden on the debtor and his counsel to attend hearings that should be suspended by operation of the automatic stay.

If you’re a homeowner, an attorney for a homeowner, or a judge, please be aware of this issue.  It might feel innocent to schedule a CMC in a foreclosure lawsuit when a bankruptcy stay is in effect, but at least one bankruptcy judge shares my view that it’s wrong.

Mark Stopa

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