Chapter 13 Bankruptcy Protects Home Owned by LLC.

Hoping to learn more about your options when faced with financial challenges? You've come to the right place.
Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

Hoping to learn more about your options when faced with financial challenges? You've come to the right place.
Stephen Dunne, Esq.

Stephen Dunne, Esq.

Philadelphia bankruptcy, credit report, and debt collection abuse attorney

Today is the day.

It’s past time you had someone in your corner.
Our first consultation is always free.

The Bankruptcy Code’s automatic stay is designed to ensure the orderly distribution of assets by temporarily protecting the property of the debtor’s estate from the reach of creditors. Property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” Id. § 541(a)(1).

The automatic stay has broad application.  In re Krystal Cadillac Oldsmobile GMC Truck, Inc., 142 F.3d 631, 637 (3d Cir. 1998); see also 3 COLLIER ON BANKRUPTCY ¶ 362.03 (15th ed. 2003) (noting the stay’s “extremely broad” scope). See also Borman v. Raymark Indus., 946 F.2d 1031 (3d Cir. 1991) (section 362(a)(3) protects property of the estate even if it is not in the debtor’s possession); In re Aponte, 82 B.R. 738(Bankr. E.D. Pa. 1988) (tenant’s bare possessory interest triggers stay).

In a chapter 13 case, the prohibition of acts to obtain possession also applies to property not owned by, but in possession of, the estate, such as leased property, even if the lease was terminated prior to the case. In re Atl. Bus. & Cmty. Corp., 901 F.2d 325 (3d Cir. 1990) (mere possessory interest in property triggers stay); In re Sudler, 71 B.R. 780 (Bankr. E.D. Pa. 1986); In re A.L.S. Inc., 3 B.R. 107 (Bankr. E.D. Pa. 1980).

And it applies to any other property in which the debtor has any interest to intangible property rights as well as to tangible property. Borman v. Raymark Indus., 946 F.2d 1031 (3d Cir. 1991) (section 362(a)(3) protects property of the estate even if it is not in the debtor’s possession).

Thus, almost all forms of civil legal actions are brought to an abrupt halt. 11 U.S.C. § 362(a)(1); Bayview Loan Servicing, L.L.C. v. Fogarty (In re Fogarty), 39 F.4th 62 (2d Cir. 2022) (although debtor’s home was owned by an L.L.C., because debtor was a named defendant in foreclosure proceeding against home proceeding was stayed).

Counsel for Bayview knew about debtor’s bankruptcy but stated, “in his view, because the LLC is a legal entity distinct from debtor, Fogarty’s bankruptcy petition did not stay acts against the LLC or assets of the LLC.” On appeal, the 2nd Circuit held “that the stay was violated because the debtor was named in the foreclosure proceeding. Further, debtor resided in the property, which means debtor had a possessory interest in real property sufficient to trigger the protection of the automatic stay.”

Another basis for application of the automatic stay occurs where the debtor signs a guaranty of either the Note or Mortgage resulting in personal liability for the LLC’s debts. 11 U.S.C. § 362(a)(6).

Counsel bringing an action against the debtor has a duty to take action to halt a non-bankruptcy court’s actions. Eskanos & Adler, Prof’l Corp. v. Leetien, 309 F.3d 1210 (9th Cir. 2002) (failure to dismiss or stay pending collection action against debtor was willful violation of stay).

However, postponement of foreclosure sale to new date does not violate stay. Taylor v. Slick, 178 F.3d 698 (3d Cir. 1999).

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