Are Serial Bankruptcy Filers Delaying your Foreclosure Suit?


Are multiple debtors taking turns filing bankruptcies in order to delay your foreclosure suit? Are you caught on a bankruptcy merry-go-round and can’t get off? An “in rem” motion to lift stay may be the answer to this type of abuse of the Bankruptcy Code. Often, when faced with foreclosure, a borrower will file for bankruptcy in order to obtain the protections of the automatic stay afforded to them under the Bankruptcy Code. The automatic stay stops a lender’s collection efforts during the pendency of the bankruptcy proceeding and there are harsh penalties if a lender violates the protections of the automatic stay. However, even though in most circumstances the bankruptcy stay is automatic, it is not absolute. A lender can file a motion in the borrower’s bankruptcy proceeding to remove the stay, known as “lifting” or getting “relief from” the automatic stay. If successful, the creditor can continue its collection efforts against the borrower and proceed with its foreclosure suit. Although a routine motion to lift stay is an invaluable tool to a lender, a routine motion to lift stay is enforceable only against the borrower who initiated the bankruptcy–not any other person. Therefore, it is of little effectiveness when two or more debtors file several bankruptcy petitions in order to invoke the protections afforded by the stay and delay a foreclosure suit against a certain piece of real property.

So, what do you do if your routine motion to lift stay against one borrower is successful, but a second borrower files for bankruptcy? The likely answer is that you’ll need to file another routine motion to lift stay in the second borrower’s bankruptcy case also. However, if you are successful in getting your routine motion to lift stay granted against the second borrower, what do you do if the first borrower later files for bankruptcy again? Then the second borrower files again? Then the first borrower files again after that? How can you possibly move forward with your foreclosure suit if the two co-borrowers keep taking this “tag-team” approach to filing for bankruptcy? When is enough enough and how do you stop it?

Remarkably, the above scenario is not uncommon and in fact was specifically addressed by Judge Barnes when he issued a decision outlining the measures taken by a debtor and her brother who filed a total of ten bankruptcy petitions over a seven year period in order to severely delay a foreclosure suit against a certain piece of real property located in Calumet City. See In re LaVergne Briggs (Case No. 12-bk-14853). Judge Barnes granted the lender’s “in rem” motion for relief from stay and as articulated by Judge Barnes in his decision, an order granting “in rem” relief from stay is an appropriate remedy when a debtor or debtors serially file for bankruptcy as part of a scheme to delay or hinder creditors. Unlike a routine motion to lift stay, an “in rem” motion to lift stay directly addresses abuses of the automatic stay by essentially prospectively eliminating it with regard to a specific piece of real property. For a two year period after an “in rem” relief order is granted, it renders the automatic stay in any future bankruptcy cases inapplicable to a particular piece of property, regardless of who owns the property or files for bankruptcy. Consequently, an “in rem” relief order effectively eliminates any benefit of the “tag-team” filing approach and allows a lender to proceed with its foreclosure suit against a certain piece of real property without fear of violating the automatic stay.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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