Filing of Chapter 13 Case by Debtor Violates Automatic Stay in Debtor’s Pending Chapter 7 Case

By Karl Johnson posted 05-04-2020 09:21


Contributing Editor: Lauren O'Neil Funseth, Lathrop GPM LLP

In In re Benitez, 611 B.R. 106 (B.A.P. 8th Cir. 2020), the United States Bankruptcy Appellate Panel for the Eighth Circuit (“B.A.P”) dismissed a debtor’s chapter 13 case as void, determining that it violated the automatic stay in the debtor’s pending chapter 7 case.

In 2017, the debtor filed a voluntary petition under chapter 7. A secured creditor moved for relief from the automatic stay with respect to certain real property in which the debtor held an interest. The bankruptcy court granted the motion and subsequently denied a later request made by the debtor for reconsideration of the order.

Within two weeks of the bankruptcy court’s denial of the debtor’s request for reconsideration, and while the chapter 7 case was pending, the debtor filed a voluntary petition under chapter 13. The debtor had not obtained a chapter 7 discharge nor had the chapter 7 trustee abandoned the real property subject to the stay relief order. Following a hearing to show cause, the bankruptcy court dismissed the debtor’s chapter 13 case as a violation of the automatic stay in the pending chapter 7 case. The court also offered alternative grounds for dismissal.

Upon review for abuse of discretion, the B.A.P agreed with the bankruptcy court’s decision dismissing the chapter 13 case because the automatic stay protects against acts that exercise control over property of the estate and is “applicable to all entities,” including debtors. The record evidenced that the filing of the chapter 13 case was merely an attempt by the debtor to prevent a noticed foreclosure sale by a creditor who had already obtained stay relief in the chapter 7 case. By filing the chapter 13 case, the debtor was attempting to exercise control over real property that was undeniably property of the chapter 7 bankruptcy estate.

As part of its oral ruling, the bankruptcy court offered alternative grounds for dismissal of the debtor’s chapter 13 case. The B.A.P. determined, however, that any consideration of alternative grounds was inappropriate as the bankruptcy court had only directed the debtor to show cause as to why his chapter 13 case should not be dismissed as a violation of the automatic stay in the pending chapter 7 case.

Editors in Chief

Karl J. Johnson, Taft Stettinius & Hollister LLP

Alexander J. Beeby, Larkin Hoffman Daly & Lindgren Ltd.