Injunctive Relief After The Expiration of the Automatic Stay

The automatic stay is one of the biggest reasons Debtors file bankruptcy.  It provides repose from the ongoing harassment of creditors.  More importantly, it allows Debtors to reorganize their affairs and to preserve their property.  Unfortunately, the automatic is subject to abuse.  Some people will engage in a pattern of filing a bankruptcy, seeing it dismissed, and refilling.  Sometimes though, a Debtor has a legitimate reason for having an earlier case dismissed and then refilling.  In that circumstance, the Debtor must file a motion to extend the automatic stay.  If this is not completed within 30 days, the automatic stay automatically expires.  This brings up the question of whether the Debtor may reinstate the automatic stay.

The recent decision in In re Lattin illustrates how debtors can seek reinstatement of the automatic stay and some of the issues that they face.  461 B.R. 832 (Bankr. D.Nev. 2011).  The debtors’ original attorneys did not complete their original bankruptcy filing, and the case was dismissed.  The debtors hired new bankruptcy attorneys who filed a new case, but did not seek to reinstate the automatic stay.  Realizing their mistake, the debtors’ attorneys filed an adversary proceeding to enjoin foreclosure of the debtors’ home under Section 105(a).

Once the automatic stay expires, it cannot be reinstated; and, the Debtor must seek relief under another section of the Bankruptcy Code.  Section 105(a) grants the court broad powers to take actions that are “necessary or appropriate” to carry out the provisions of the Bankruptcy Code.  This allows a court to issue injunctive relief similar in effect to the automatic stay.

Midfirst Bank had commenced foreclosure proceedings against the debtors.  The purpose of their chapter 13 bankruptcy was to prevent foreclosure through a chapter 13 plan.  Ordinarily, a debtor can avoid this type of issue by confirming a chapter 13 plan that becomes binding as a matter of law, allowing the debtor to keep property notwithstanding the expiration of the automatic stay.  The issue for these debtors was that Midfirst Bank was entitled to foreclose before the debtors’ chapter 13 plan would be confirmed.  Accordingly, they sought injunctive relief.

Not all courts will grant relief to a debtor seeking to enjoin a creditor’s collection actions after the expiration or termination of the automatic stay.  The crucial distinction in this case was whether the debtors sought a broad injunction versus a specific injunction.  Courts that have granted an injunction after the expiration of the automatic stay, have done so when the injunction sought under Section 105(a) is similar in nature to a traditional request for injunctive relief.  A specific injunction is similar in nature to a traditional injunction and was, therefore, permitted in this case.

In order to qualify as a specific injunction, the injunction must meet certain criteria.  It must be specific as to the party and as to the action enjoined.  The party was specifically identified as Midfirst Bank.  The action was specifically identified as the foreclosure of the debtors’ residence.  Accordingly, the injunctive relief was permitted.  By contrast if the relief requested was directed at all creditors or all actions to collect, then the court would have presumably denied the request as overly broad and too unlike traditional injunctive relief.

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