You or your firm are owed money from a debtor who filed bankruptcy. The debt could be a personal loan, a corporate debt, or an institutional debt such as a mortgage or vehicle loan. Your delinquent account was downgraded from a seriously delinquent debt, a pending lawsuit or a judgment, to bankrupt status. You just received a notice of pending bankruptcy. In most cases (there are exceptions), you have to stop all debt collection actions pursuant to the automatic stay of bankruptcy section 11 U.S.C. Section 362(a).
One of the most powerful and effective tools is the bankruptcy relief from stay action. This is a relatively simple motion where creditors can obtain permission of the court to (despite the bankruptcy stay): a) proceed with foreclosure, b) repossession of secured collateral, and c) continuation of lawsuit litigation. Each of these categories are discussed below.
Relief From Stay To Proceed With Foreclosure: If you or your company is a real estate secured lender, the bankrupt may have filed bankruptcy while your company was in the process of a non judicial foreclosure on the debtor’s real estate. Bankruptcy filings on the eve of a foreclosure sale are common. You need a consultation with an experienced bankruptcy lawyer to determine if a relief from stay action is recommended. The main factors to be evaluated include the amount of equity in the property (including your lien and any other liens), the amount of delinquency, whether any prior bankruptcies have been filed, and the chapter of bankruptcy filed.
Relief From Stay To Proceed With Repossession: If you or your company is a secured lender on personal property such as vehicles or equipment owned by the debtor, you want to consider whether a relief from stay action would further your goals to repossess the property and liquidate it to reduce or eliminate the loss owed to you or your company on the debtor’s defaulted secured loan. On the other hand, if the debtor is current on the obligation and has filed bankruptcy for other reasons, no relief from stay action may be needed. Assuming a delinquency and little or no equity in the collateral, a relief from stay action may the best way to maximize you or your company’s recovery of cash on a failing loan.
Relief From Stay To Continue With Lawsuit Litigation: It is extremely common that lawsuit plaintiffs must react to a bankruptcy filing, whether it be on a newly filed lawsuit or on the eve of trial. Shortly after the bankruptcy notice is received, a business judgment should be made about whether it makes economic sense to pursue the debtor in relief from stay actions to preserve the possibility of recovery on the debt. Usually, this will require 2 things. An adversary proceeding or bankruptcy lawsuit to be filed within 90 days of the bankruptcy filing, and a relief from stay action to proceed to trial in non bankruptcy court against the debtor. Typically, relief from stay will be acquired to prove up a fraud related cause of action which can be carried into bankruptcy court to sustain an allegation under section 523 of the Bankruptcy Code, a judgment which will survive the bankruptcy as something the debtor must pay back.
Creditor bankruptcy issues are often complex. What to do when faced with a bankruptcy filing depends on who the debtor is, the debtor’s history, the chapter of bankruptcy filed, prior bankruptcy filings, and many other factors. Michael Chekian is an experienced, California Bankruptcy Certified Specialist who runs a full service law firm ready to serve your needs. Contact Mike or his staff today for a friendly, confidential, free evaluation of your specific issues. Voice: 310 390 5529; email mike@cheklaw.com ; facsimile 310 451 0739.