Alabama Bankruptcy Lawyer Blog

Effective December 1, 2009, the local rules for the United States Bankruptcy Court, Middle District of Alabama were amended to reflect that all time periods are now measured in 7 day increments.

5 days are now 7.
10 days are now 14.
15 days are now 14.
20 days are not 21.

For years, we've thought of our rules in 1, 10, 15, 20 or 30 day increments. It's a new world now.

For further information, visit the newly redesigned website for Bankruptcy, Middle District at: http://www.almb.uscourts.gov/main.html.

You are a secured lender; debtors have indicated in their Statement of Intention that they will reaffirm; you've provided debtors' counsel with the information needed for the reaffirmation agreement; discharge is coming up and no reaffirmation agreement has been approved. What now, short of a $150 filing fee and attorney's fee for a stay motion? While not a common occurrence, as most debtors and their attorneys are anxious to get reaffirmation agreements in place, sometime it just doesn't get done.

Section 362(h) provides for termination of the automatic stay under three circumstances:

A. Debtor fails to file a timely statement of intention; the stay terminates with respect to personal property collateral and it is no longer estate property on the 31st day following the filing of the petition; 362(h)(1)(A)

B. Debtor files a statement of intention, but does not precisely indicate that debtor intends to redeem, reaffirm or surrender; the stay terminates with respect to personal property collateral and it is no longer estate property on the 31st day following the filing of the petition; 362(h)(1)(A)

C. Debtor files a proper statement of intention within 30 days of the petition date, but fails to take the specified action within 30 days after the date set for the first meeting of creditors. 362(h)(1)(B); the stay terminates with respect to personal property collateral and it is no longer estate property on the 31st day following the date set for the first meeting of creditors.

The language of the Code provides that the actions specified occur by operation of law, or "automatically." I've noticed, however, that some attorneys file motions for "comfort orders" confirming the termination of the automatic stay for 362(h) noncompliance, Several courts have held, however, that comfort orders are properly issuable only for stay terminations implicating 362(c), and not 362(h). In re Ermi, 2006 WL 2457144 (Bankr. N.D. Ohio 2006); In re Conley, ___ B.R. ___, 2006 WL 3420244 (Bankr.N.D. Ohio 2006); In re Dienberg, 348 B.R. 482 (Bankr. N.D. Ind. 2006). These cases strike me as consistent with the intent of the legislation, which seems directed at insuring prompt redemption, surrender or reaffirmation with respect to depreciable personal property such as cars, trucks, boats, motorcycles, etc.

The bottom line is that 362(h) noncompliance results in stay termination by operation of law. If you have any doubt or question about compliance, consult with counsel first. These provisions were clearly included in BAPCPA to encourage prompt surrender, redemption or reaffirmation, or prompt stay termination, so that secured creditors do not suffer unnecessary deterioration in their loan position. Use it!

You would think that by now, the vast majority of creditors would fully understand the effect and duration of the automatic stay of 11 U.S.C. Section 362. Admittedly, Section 362 is about a zillion pages long, and has been a fruitful source of litigation. And certainly, most clients do not have the time or the inclination to follow such matters closely. That's why they have attorneys. Here are some of the misconceptions I hear most often:

A. "I didn't get notice": my stock answer is "what is it about the word automatic that you don't understand?" The stay is effective upon filing.

B. "I repossessed before the filing": there are a few folks out there who assume that once repossession is effected, title has passed and the property is no longer subject to the stay. Title does not pass until a disposition of the asset occurs in accordance with applicable state law.

C. "My customer told me it was OK to come get the tractor": if you think this will work, I can't help you.

D. "The told me they weren't going to bankrupt on my debt": the stay is not dependent upon the claim or debt. The stay is intended to protect property of the bankrutpcy estate, a term very broadly defined by Section 541 of the Bankruptcy Code. Anything that is property of the bankruptcy estate is protected by the stay, notwithstanding claims or liens.

E. "I filed the garnishiment before bankruptcy--it's not my fault the employer continued withholding": if you file a writ of garnishment or execution, and debtor files bankruptcy, you have an affirmative duty to dismiss or stay the proceeding immediately. If, with notice of bankruptcy, you do nothing, you are at risk for sanctions. Myers v. Miracle Finance, AP case number 08-1061, Chapter 13, Middle District of Alabama, March 6, 2009. Question: what if you have referred an account for collection? Do you have an affirmative duty to terminate those collection efforts? I think you do.

F. "Someone told me that once discharge enters, the stay is over": It is not quite that simple. Generally speaking, the stay of an act against property of the estate continues until such property is no longer property of the estate. The stay of any other act continues until the earlier of (a) the time the case is closed; (b) the time the case is dismissed; or (c) the time discharge is granted or denied. Frankly this subject is too involved to cover in a blog post, so you might want to take a look at my web site where I've posted a detailed paper on the automatic stay.

I've rambled on long enough. My advice is to always err on the side of caution, seek stay relief when there is any question, and call your attorney before taking action. The old adage "pay me now or pay me later" is very applicable to stay violations.

As a Chapter 7 Trustee, I have routinely attacked as preferential credit card balance transfers occurring within 90 days of the filing of bankruptcy. The 11th Circuit, in In re Egidi, 2009 WL 1684601 (11th Cir. June 2009) has affirmatively held such transfers to be avoidable preferences in an opinion rendered this past summer.

The argument was that the debtor was not actually making a transfer. It was more in the nature of a "lender to lender" transfer, and did not have a detrimental effect on the Bankrutpcy Estate. The 11th Circuit made fairly short work of the argument, holding that the transfer was subject to the debtors direction and did diminish the estate, and was hence preferential.

What interests me more than the decision is the reaction of the industry to the decision. Since Egidi was released, I've been watching to see if there was a noticeable decline in balance transfers being reported by debtors. This seems to be the case, at least in Chapter 7 cases. Since this past summer, I can't recall a single instance of a debtor reporting a balance transfer within 90 days of filing. It may be a coincidence, but I doubt it. Folks who use credit cards to make balance transfers are on presumptively shaky financial ground, and are candidates for bankruptcy. The industry has probably figured out that allowing a five or six thousand dollar balance transfer to someone in a difficult financial position is unwise. Ya think?

On May 20, 2009, the President signed into law the "Helping Families Save Their Homes Act of 2009." (the "Act"). If the House had succeeded, we would be talking about some fairly significant changes in Bankruptcy law, notably with respect to residential mortgages. These provisions did not, however, make the Senate version of the bill, nor the final legislation to come out of conference and become law.

The Act contains a wide range of provisions designed to offer protection to homeowners facing foreclosure. My focus here, however, will be the "Protecting Tenants in Foreclosure Act of 2009," popularly known as the other "Title VII."

The purpose of the other Title VII is to afford protection to tenants at will or lessees who occupy property that is foreclosed. The legislation applies to the foreclosure of any federally related mortgage loan, or, to the foreclosure of any "dwelling or residential real property." The party taking title at forclosure takes subject to certain rights in favor of tenants or lessees which may be summarized as follows:

A. Bona fide tenant at will must be given 90 days before eviction.
B. If there is a bona fide lease in place, the tenant may remain until the end of the term, except that the lease may be terminated and the tenant evicted after the 90 day notice if the purchaser at sale will occupy the property as a primary residence.
C. A tenant or lessee is "bona fide" when:
1. The lease is to someone other than the mortgagor, or mortgagor's child, spouse or parent;
2. The lease or tenancy resulted from an arm's length transaction;
3. The rent payable is not substantially less that fair market value.

It is worthy of note that in Alabama most leases are never recorded, nor are they required to be in writing. I make it a practice to announce at foreclosure sales that the property is subject to any unrecorded leases, whether written or oral, and include appropriate language in my foreclosure notice and any deed given. While I don't expect this legislation to pose a significant problem for most of my lending clients, here is a question that bears mentioning: In Alabama, following foreclosure, many occupants will hold over. You can give them the notice to vacate or risk losing their redemptive rights (big deal, huh!), or, ultimately evict. Does the Other Title VII mandate a 90 day notice? I think not, given the requirements that the tenancy is "bona fide." I think this would require mutual agreement that a tenancy exist. But be warned that if you acquiesce in the occupant remaining, you may risk creating a tenancy that implicates the Other Title VII. The good news is that the Other Title VII provisions sunset in December 31, 2012.

My name is Bill Carn. I am a longtime creditor's rights attorney in the Middle District of Alabama (and elsewhere on occasion), and for about the last 10 years, a Panel Chapter 7 Trustee. As a member of the Association of Credit and Collection Professionals, I also represent selected debt collection clients.

I don't know if it is the economy, the internet, fear, panic, or some other unknown animal, but in the last 8-10 months there seems to have been a notable increase in questions from the creditors' corner of the ring. It occurs to me that a blog devoted to bankruptcy in general, from the perspective of one who is both creditor's attorney and trustee, might be informative. I will also include from time to time matters that, while not directly related to bankruptcy, relate to the management of distressed loans.

One of the beauties of blogging is that it encourages the timely exchange of information. Most creditors who receive a bankruptcy notice are under water, or very close, and time is critical. I hope that with this blog we can offer timely information that will assist the credit community in the management of their bankruptcy exposures. And if you lend, you will have bankruptcy exposure. Your job is to manage it effectively.

Thanks very much for reading.