28 May Chapter 13 Plan Provision Does Not Terminate the Automatic Stay
Although there are no shortages of bankruptcy lawyers representing creditors, I still run across real estate and corporate lawyers who feel the need to dabble in bankruptcy, thereby creating extra work for everyone.
Just last week, one of my Chapter 13 clients called to say that he had been sued three months ago by a law firm representing a time share that we surrendered in his bankruptcy case. He had not told me about this lawsuit until now because he and his wife recently had a baby and he has been busy. Recently, he received a big stack of papers and thought that he might want to check in with me.
I looked at the paperwork he faxed over and I discovered a lawsuit filed against my client in a different state. The lawsuit contains the erroneous assertion that because the debtors have set out in their chapter 13 plan an intent to surrender the time share, the automatic stay is no longer in effect. The lawsuit also does not assert how the time share company asserts jurisdiction over my clients in a different state, but that is another story.
The automatic stay in bankruptcy is a core protection benefiting debtors in Chapter 13 bankruptcy. There is no magical termination of the stay just because a debtor surrenders property in his plan. A creditor seeking relief from the stay is required to file a motion for relief from stay against the debtor and against the trustee as representative of the estate. Until the judge issues an order lifting the stay, it remains in place.
I have a couple of options in this situation. Option one is to file a complaint for damages against the time share company and its counsel in bankruptcy court for its violation of the stay, asking the judge to award damages and attorney’s fees. Option two is to contact the time share company’s lawyer to ask that she vacate any judgment and start over by filing a motion for relief from stay.
I elected to go with option two at this point. I don’t know that my client has a great deal of damage at this point other than some emotional distress and I think that our judge would expect that I would attempt to resolve this amicably prior to bringing suit. If opposing counsel won’t play ball, however, I will pursue damages.
The lessons you can learn from this:
- if you get sued, call your lawyer immediately. There is never a good reason to ignore legal papers. Here, my client had an attorney and still failed to get this paperwork to me in a timely manner, thereby causing extra work for everybody
- just because a lawyer says or does something, you don’t want to assume that it is true. Opposing counsel in this case may be a fine lawyer and most likely understands real estate transactions far better than I ever will. But here, opposing counsel is dabbling in an area of law that she does not understand. I know this, but my client does not – all the more reason why he should have involved me several months ago.
Jonathan Ginsberg, Esq.
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