02 Nov Six Bankruptcies to Save Home Not Scheme to Defraud
Linda Smith did not scheme to defraud her mortgage creditor when she filed one bankruptcy case after another to stop foreclosure sales on her Wichita home, the U.S. Bankruptcy Court for the District of Kansas ruled, denying the creditor’s request for in rem stay relief, two years of unfettered freedom to pursue state court foreclosure.
In rem stay relief is “strong medicine that is only indicated when the debtor has acted in a fraudulent manner,” Chief Judge Robert E. Nugent observed.
When a bankruptcy case is filed, a powerful stay automatically goes into effect prohibiting acts to collect debts. This stay stops pending foreclosure proceedings unless the creditor gets a bankruptcy court order allowing it to proceed.
Xact Funding LLC requested in rem stay relief, a remedy that was made part of the bankruptcy code in the 2005 amendments. If granted, mortgage creditors get a two year exception from the automatic stay to foreclose on the property no matter how many bankruptcy cases are later filed by the debtor. 11 U.S.C. § 362(b)(20).
Ms. Smith filed six bankruptcies in five years to stop foreclosure of the mortgage on her home, but the creditor did not prove the latest bankruptcy petition, filed the day before a sheriff sale of her home, was part of a scheme to delay, hinder, and defraud creditors, Judge Nugent ruled. A creditor seeking in rem stay relief, must prove that the filing of multiple bankruptcies was a plan by the debtor to intentionally defraud, not just hinder or delay, the foreclosing creditor, he said.
Judge Nugent said the evidence showed Ms. Smith “is more of a plodder than a plotter”. She didn’t attempt to conceal assets. There was no “artful plot”. “She is, at day’s end, simply a serial filer trying to stop a foreclosure,” he concluded.
In re Linda K. Smith, Debtor, No. 08-12091, 2008 WL 4216142 (Bankr.D.Kan.), Sept. 11, 2008.
Read more about foreclosure and the automatic stay in bankruptcy by Massachusetts bankruptcy attorney Jed Berliner and San Diego bankruptcy attorney Michael Doan. St Louis, Missouri, bankruptcy attorney Wendell Sherk warns debtors must remain current on their mortgage payments to keep the stay in place. North Carolina bankruptcy attorney Susanne Robicsek explains property can be sold after stay relief has been granted.
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