Automatic Stay- the trilogy

Posted by Kevin on June 21, 2011 under Bankruptcy Blog | Be the First to Comment

This is the third blog on the automatic stay.

By now, it should be sinking in that the automatic stay is a powerful tool which can help a debtor by giving him or her some breathing room to move forward.

But the automatic stay only applies to the property that is in the bankruptcy estate.

I have had clients in the past who have come to me too late to do anything.  A good example is a recent case from upstate New York.  In 2006, the debtor did not pay his real estate taxes.  The County filed an in rem tax foreclosure in February, 2010.  The deadline to redeem the property or respond to the foreclosure petition was in May, 2010.  The papers warned the debtor if he did nothing, the property would automatically transfer to the county.  Well, you guessed it- the debtor never responded and the county received a default judgment in June, 2010.  The county did not file its deed, however, and in the meanwhile, the debtor filed a Chapter 13 petition.  The debtor filed a lawsuit in the bankruptcy, called an adversary proceeding, to set aside the tax foreclosure as a fraudulent conveyance.

The bankruptcy court said that debtor was SOL.  First, a tax foreclosure is not a fraudulent conveyance.  Second, the transfer was complete upon entry of the default judgment even though the deed had not been filed.  That is New York law.  The court suggested that the debtor may be able to go back to the New York court to see if they would vacate the default judgment, but that was not the business of the bankruptcy court.

In short, the debtor waited to long.  By the time that he filed his bankruptcy petition, the property was no longer his.  If you do not own the property, it is not subject to the stay.

What is the lesson?  Don’t hide your head in the sand when you are having problems.  You do not do your own electrical work.  You do not perform surgery on yourself.  So, it is a good idea that you should not try to be your own lawyer especially in areas that are specialized.  This debtor saved a couple of bucks by not hiring a lawyer to represent him in the foreclosure and wound up losing his house.