Asian Journal- The Filipino-American Community Newspaper

BANKRUPTCY law creates a protective shield around the debtor and the bankruptcy estate upon filing of the bankruptcy case. This is known as the "automatic" stay or injunction that stops all claims against the debtor on the date of filing of his bankruptcy petition. Claims against the debtor include the filing of a lawsuit or continuing a lawsuit that has been filed. It also includes levies, garnishments and other liens against the debtor’s assets and income, phone calls and collection letters, and creditor actions to get assets securing a loan, such as repossessing a car, or foreclosing on a house. But is the creditor without remedy?

Creditors who believe they have the right to continue lawsuits, repossession or foreclosure efforts despite debtor’s bankruptcy may file a motion for relief. This is a noticed motion asking for the court’s permission to continue the lawsuit, repossession or foreclosure based on legal grounds. Debtor needs to oppose the motion if he has legal grounds to do so. In a motion for relief case heard last week, creditor filed a motion for relief asking for the court’s permission to allow him to continue state court litigation for fraudulent transfer and conspiracy. Debtor quitclaimed his share of the residence to his ex-wife 5 years pre-filing. Debtor settled with creditor for $150,000 a year before filing his bankruptcy in a separate case for breach of contract and fraud. There was no admission of fault in the settlement agreement. We opposed the motion for relief arguing that the state court case was a "related" case to the bankruptcy, that the state court case "arose" in the bankruptcy, both pursuant to 28 USCA 1334 (b) and the state court case was not at an advanced stage because the trial date was set for March, 2010. The court denied the motion for relief saying the creditor had no standing to ask for relief. The court said that only the Chapter 7 trustee could bring the motion for relief and since he has not done so, creditors had no standing to bring the motion.

What happens very often now are mortgage or trust deed creditors who file motions for relief to ask permission from the court to continue foreclosure proceedings. For instance, client filed his Chapter 7 case a week before the foreclosure auction sale. Because of the bankruptcy "automatic" stay provision, creditor did not push through with the auction sale of debtor’s residence. Creditor files a motion for relief alleging that debtor has not paid his mortgage for the last 6 months pre-filing, and has not paid 3 months of mortgage payments post filing, therefore debtor is 9 months in arrears with a total past due of $35,000. Creditor further alleges that the fair market value of the property is $300,000, and the balance of the first mortgage is $450,000, therefore the property has no equity. Can debtor successfully oppose the motion for relief? The answer is NO, unless client has evidence that he is current on his mortgage payments and that there is sufficient equity cushion providing "adequate" protection for the creditor. Creditor can proceed with foreclosure proceedings after relief is granted. If creditor has not yet sent out the official Notice of Default that starts the 90-day cure period, he can do it right after the order granting the motion for relief is entered. If the 90 days period has run it’s course, creditor can send out the official Notice of Foreclosure Sale date. This is at least 21 days after the 90 days period has lapsed.

Motions for relief work differently in Chapter 13 cases. A Chapter 13 case freezes the default portion of the mortgage and allows debtor 36 months to pay it off. However, debtor must keep his post filing mortgage payments current. Therefore, if debtor falls behind on post filing mortgage payments, creditor has legal grounds to file a motion for relief based on unpaid mortgage payments.

Contact my office if you need debt relief. I will analyze your case personally.

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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.

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( Published on July 25, 2009 in Asian Journal Los Angeles p. C4 )