Chapter 7 - § 7.6 • IMMEDIATE EFFECT OF BANKRUPTCY FILING — THE AUTOMATIC STAY

• Jurisdiction: Colorado

§ 7.6 • IMMEDIATE EFFECT OF BANKRUPTCY FILING — THE AUTOMATIC STAY

§ 7.6.1—Block of the Automatic Stay

A bankruptcy filing automatically creates a stay against efforts to collect pre-petition debts, exercise control over, or take possession of bankruptcy estate property. The automatic stay prevents a broad range of actions by creditors, whether litigation or self-help, during the course of a bankruptcy case. The automatic stay thus provides a debtor a "breathing spell," which is one of the central protections to a debtor in bankruptcy.

§ 7.6.2—Scope of Stay

Pursuant to 11 U.S.C. § 362(a), the following actions are prohibited:

• The commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the bankruptcy case, or to recover a claim against the debtor that arose before the bankruptcy filing.
• The enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the bankruptcy case.
• Any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.
• Any act to create, perfect, or enforce any lien against property of the estate.
• Any act to create, perfect, or enforce against property of the debtor any lien to the extent such lien secures a claim against the debtor that arose before the commencement of the bankruptcy case.
• Any act to collect, assess, or recover a claim against the debtor that arose before commencement of the case under this title.
• The setoff of any debt owing to debtor that arose before the commencement of the case against any claim.

Because the automatic stay applies to attempts to collect a debt, the automatic stay also bars collection calls and similar types of pressure.

§ 7.6.3—Exceptions to the Automatic Stay Impacting Real Property

Much of the focus of BAPCPA was on the real and/or perceived abuse by individuals of the protections afforded by the automatic stay. Accordingly, the new legislation provided significant limits to the scope of the automatic stay as it applies to secured creditors and landlords.

Prior Relief from Stay Proceeding Exception

11 U.S.C. § 362(b)(20) excepts from the automatic stay actions to enforce liens or security interests in real property if, within the prior two years, a creditor had obtained relief from the automatic stay based on a finding pursuant to 11 U.S.C. § 362(d)(4) that the debtor's bankruptcy filing was part of a scheme to delay, hinder, or defraud creditors that involved either an unauthorized transfer of the real property or multiple bankruptcy filings affecting the real property. In order to avoid this exception, the debtor must show the subsequent petition was based on changed circumstances or other good cause.

Ineligible Filer Exception

11 U.S.C. § 362(b)(21) excepts from the automatic stay any action to enforce a lien or security interest in real property if a debtor is ineligible under 11 U.S.C. § 109(g) or if the case was filed in violation of a court order prohibiting a debtor from filing bankruptcy. See also 11 U.S.C. § 362(j) and L.B.R. 4001-2(f).

Eviction Exceptions

Two provisions address the impact of the automatic stay within the context of eviction actions: 11 U.S.C. §§ 362(b)(22) and (b)(23).

Evictions for Monetary Default

11 U.S.C. § 362(b)(22) excepts from the automatic stay a landlord's continuation of eviction proceedings, unlawful detainer actions, or the like to regain possession of residential real property where pre-petition the landlord obtained an order of possession against the debtor/tenant. The application of the exception may be stayed for 30 days if, at the time the debtor files bankruptcy, the debtor files with the court and serves on the landlord a certification stating under penalty of perjury that under non-bankruptcy law, there exist circumstances pursuant to which the debtor would be permitted to cure the entire monetary default and that the debtor has deposited with the court any rent due in the initial 30-day period. 11 U.S.C. § 362(l). If the landlord objects to the certification, then the court must hold a hearing within 10 days. To remain in possession, the debtor must cure all monetary defaults within 30 days of the bankruptcy filing. If this occurs, the automatic stay remains effective as to the leased property. Recent revisions to the official petition form require debtors to state whether they are renting property and, if so, whether their landlord had obtained an eviction judgment, which helps to bring this issue to the foreground at the start of the case.

One of the few Colorado cases to consider 11 U.S.C. § 362(b)(22) is In re Dennen, 539 B.R. 182 (Bankr. D. Colo. 2015). There, prior to the bankruptcy filing, the debtor's real property was foreclosed and the creditor obtained a writ of possession from the state court. After the debtor filed bankruptcy, the creditor continued its efforts to evict him, asserting that, under 11 U.S.C. § 362(b)(22), the automatic stay did not apply to its post-writ of possession actions to evict the debtor. Although the debtor argued there were mortgage abuse-related claims that should bar continuation of the eviction, the bankruptcy court disagreed and permitted the creditor to proceed.

Evictions for Public Safety Concerns

11 U.S.C. § 362(b)(23) excepts from the automatic stay a residential landlord's eviction efforts based on the debtor/tenant's endangerment of the leased property or the debtor/tenant's illegal use of controlled substances on the property. In this instance, the landlord must file and serve on the debtor a certification made under penalty of perjury setting forth that either an eviction proceeding had been instituted, or that within 30 days of the bankruptcy filing the debtor endangered the property or illegally used or allowed to be used a controlled substance on the property. If there is no response from the debtor within 15 days, the lessor may complete the process to obtain possession of the property. If the debtor objects, then a hearing is held within 10 days of the debtor's objection being filed. If the debtor is able to demonstrate the grounds set forth in the landlord's certification either never existed or were remedied, then the automatic stay will remain in place. If not, then the landlord may continue its efforts to regain possession of the real property.

§ 7.6.4—The Automatic Stay and Pending Foreclosures

Foreclosure is frequently a primary trigger for a bankruptcy filing. As the foreclosure sale approaches, the likelihood of the debtor or property owner filing bankruptcy increases. It is essential to perform bankruptcy checks immediately prior to each stage in the foreclosure to ensure that the borrower has not filed bankruptcy to avoid violations of the...