California Court Discusses Automatic Stays in Bankruptcy Cases

One of the many benefits of filing bankruptcy is that, once a petition is filed, an automatic stay is entered that prevents any creditors from pursuing claims against the debtor. While the courts have the authority to lift stays in certain circumstances, their right is not absolute, and if a stay is erroneously lifted, it may constitute an abuse of discretion. This was demonstrated in a recent California opinion in which the court reversed an order lifting an automatic stay. If you owe debts that you are unable to pay, it is advisable to speak to a skillful California bankruptcy lawyer to discuss whether you may be eligible for debt relief.

The Facts of the Case

It is reported that the debtor filed a petition for Chapter 7 bankruptcy relief, which accordingly resulted in an automatic stay of any pending claims. After he filed the petition, he created a company. The creditor then filed a motion to lift the automatic stay so that she could amend the state court judgment issued against the debtor to add the debtor’s company as an additional debtor and to enforce the judgment against the debtor.

Allegedly, the defendant opposed the motion, arguing that his company was not liable for his debts and that any claims against the company would be akin to seeking unlawful enforcement of the judgment against him and his post-petition assets. The court entered an order granting the debtor a Chapter 7 discharge and subsequently entered an order granting the creditor’s motion for relief from the stay. The debtor then appealed.

Automatic Stays in Bankruptcy Cases

On appeal, the court vacated the order granting the stay. The court explained that a bankruptcy court abuses its discretion if its rulings are implausible, illogical, or lack evidentiary support or if they apply the incorrect standard. Pursuant to the bankruptcy code, the filing of a bankruptcy petition imposes an automatic stay on the continuation of any litigation filed against the debtor prior to the filing of the petition and the enforcement of a judgment obtained against the debtor prior to the petition.

The stay of actions against the property of the estate continues until the property no longer is part of the estate. The stay of all other acts listed in the bankruptcy code expires when the bankruptcy case is closed, discharge is granted or denied, or the case is dismissed, whichever occurs earliest. In other words, the stay automatically expires when discharge is granted. Thus, a bankruptcy court abuses its discretion if it grants a motion for relief from the automatic stay after the stay has ended.

In the subject case, the court noted that the stay of the state court lawsuit and other acts against the debtor ended when he received the Chapter 7 discharge. Thus, the court reversed the bankruptcy court ruling.

Meet with an Experienced California Bankruptcy Attorney

People who struggle to pay their debts are often able to regain financial stability by discharging their debts via bankruptcy.  If you wish to file a bankruptcy petition, it is in your best interest to meet with an attorney. Matthew D. Roy is an experienced California bankruptcy lawyer who can assess your case and advise you of your options for seeking debt relief. You can contact Mr. Roy through the form online or by calling (916) 361-6028 to set up a meeting.