Sacramento Bankruptcy and Divorce Attorneys BlogCalifornia Court Discusses Stays in Bankruptcy Cases
One of the benefits of bankruptcy is that it prohibits creditors from pursuing claims while the bankruptcy is pending. The automatic stay does not bar all non-bankruptcy-related activities, though, as discussed in a recent California case. If you are overwhelmed with debt, you should meet with a California bankruptcy lawyer to discuss whether bankruptcy may be an option for you.
Facts and Procedure of the Case
Reportedly, in January 2022, the Superior Court appointed a receiver, managed by its president, to oversee a property located in Perris, California, which was owned by the debtor. By March 2023, the court approved the sale of this property. Shortly after, the debtor filed for Chapter 7 bankruptcy in early March 2023, initiating a bankruptcy case. In the following weeks, the receiver requested court approval to retain legal counsel for the bankruptcy case, which the court granted.
It is alleged that a motion to lift the automatic stay on the property was filed in April 2023 and granted shortly thereafter. In June 2023, the debtor filed a motion for sanctions, alleging that the receiver and an in-house attorney violated the automatic stay by filing various documents in the receivership action before the stay was lifted. The bankruptcy court heard and denied this motion in July 2023. The debtor appealed the denial, and the appeal was transferred to the appellate court in August 2023.
Violations of Automatic Stay Provisions
The court reviewed the case to determine if the automatic stay provisions under bankruptcy law were violated. The court clarified that the automatic stay is intended to halt all collection efforts and legal actions against the debtor’s property to provide temporary relief and prevent creditors from gaining an unfair advantage.
It was established that the automatic stay does not completely halt all activities outside the bankruptcy court, mainly if they are aimed at maintaining the status quo rather than advancing prepetition claims. The court found that the filings in the receivership action, including the request for legal counsel and routine monthly accounting, were within permissible conduct as they did not constitute harassment or interference with the bankruptcy proceedings.
Thus, these actions did not violate the automatic stay. Consequently, the court affirmed the Bankruptcy Court’s denial of the motion for sanctions, agreeing that the actions of the receiver and attorney were consistent with the purposes of the automatic stay and did not warrant sanctions.
Seek Guidance from a Knowledgeable Bankruptcy Attorney in California
Bankruptcy proceedings offer crucial protection by halting creditor actions against debtors until the bankruptcy process is completed. While the automatic stay provides immediate relief, it is important to note that this protection can be lifted under specific conditions. Understanding your rights and the bankruptcy process is vital if you are facing substantial debt and struggling to fulfill your financial commitments. An experienced California bankruptcy lawyer can provide valuable regarding your debt relief options and support throughout the process. To schedule a consultation, please reach out through our online contact form or call us at (916) 361-6028.