California Court Discusses Grounds for Granting a Petition to Extend a Bankruptcy Stay

One of the many benefits of filing a bankruptcy action is that it automatically stays any parties from pursuing civil claims against the debtor. Generally, a stay will last for the duration of the bankruptcy case. In some instances, though, the stay will expire after a much shorter time period. In such instances, the debtor may petition the court to extend the stay. Recently, a California court explained the grounds for granting a request to extend a stay in a matter in which a creditor objected to the bankruptcy court’s decision. If you are unable to manage your debts, you may be eligible to file for bankruptcy, and you should speak to a California bankruptcy lawyer regarding your rights.

The Background of the Case

It is reported that the debtor filed a Chapter 11 bankruptcy petition in May 2019. Two months later, the court dismissed his case on the grounds that the debtor’s attorney did not sufficiently represent or counsel him. The debtor filed a second Chapter 11 bankruptcy petition in January 2020. In the second case, he was not represented by an attorney. The debtor subsequently filed a motion to extend the automatic stay; while the stay granted in a bankruptcy case usually endures for the duration of the case, if a debtor had a pending Chapter 11 case dismissed within the preceding year, the stay only lasts 30 days.

Allegedly, the debtor also filed a declaration stating the served notice of the motion on all known creditors. The court granted the motion, extending the stay until terminated by operation of law or an order of the court. The creditor then learned of the bankruptcy proceeding and filed a claim against the debtor in civil court. The bankruptcy court dismissed the debtor’s case, pursuant to a motion by the trustee, and the state court dismissed the creditor’s case. The creditor moved to reopen the bankruptcy case for the limited matter of determining whether the stay was terminated as to them. The court granted the motion but found that the stay applied to the creditor. The creditor then appealed.

Grounds for Granting a Petition to Extend a Bankruptcy Stay

The question presented on appeal was whether a bankruptcy court could extend a stay for all parties and purposes, even for creditors who did not receive notice of the motion to extend a stay or of a hearing on the motion. The court affirmed that they could, noting that stays extended by bankruptcy courts are effective against everyone, regardless of notice.

In the subject case, the court found that the debtor filed the motion to extend the stay in good faith. As such, the bankruptcy court properly exercised its discretion in extending the stay, and the court affirmed the bankruptcy court ruling.

Confer with a Trusted California Bankruptcy Attorney

People who seek debt relief via bankruptcy typically cannot be pursued by creditors while their bankruptcy action is pending, but there are exceptions in certain cases. If you have substantial debts and want to learn more about what relief is available, it is prudent to confer with an attorney as soon as possible. Matthew D. Roy is a trusted California bankruptcy lawyer with ample experience helping debtors protect their interests, and if you hire him, he will work tirelessly on your behalf. You can reach Mr. Roy through the form online or by calling (916) 361-6028 to set up a conference.