Landlord sanctioned for violating automatic stay, even though automatic stay was ultimately lifted

In In re Shrum, an opinion issued by Judge Shefferly of the United States Bankruptcy Court for the Eastern District of Michigan, the Landlord obtained a judgment of possession for nonpayment of rent in the state district court; the debtor then filed a Chapter 13 bankruptcy.  The debtor also deposited one month’s rent with the bankruptcy court and filed Official Form 101A.  At a subsequent hearing in the district court on the debtor’s motion for a new trial and the landlord’s motion for entry of an order of eviction, the debtor advised the court of the bankruptcy filing and the filing of Form 101A and the deposit of funds.  The landlord’s attorney acknowledged notice of the filing, but argued that the debtor had falsified Form 101A because she stated she had the right to cure the default when, under the terms of the judgment, the time to cure had already expired.  The district court went forward with the hearing, denied the debtor’s motion for new trial, and granted the landlord’s motion for the order.  The debtor then filed a motion in the bankruptcy court to hold that the exception to the automatic stay applied because she complied with the statute, to extend the automatic stay (this was her second filing in a year) beyond 30 days as to all creditors, and to find the landlord violated the automatic stay and impose sanctions.

After hearing, the court found that the landlord had violated the automatic stay by choosing to go forward with the hearing in the district court rather than seeking to challenge the debtor’s certification on form 101A in the bankruptcy court.  While acknowledging that a state court has jurisdiction to determine whether the automatic stay is in effect, that determination is not binding on the bankruptcy court and, if the bankruptcy court finds that the automatic stay was in effect, it can sanction the creditor for violating the automatic stay by proceeding in the state court action.

This case should be a caution to creditors:  when in doubt, assume that the automatic stay may be in effect and seek relief from the automatic stay.  In this case, the bankruptcy court awarded both damages to the debtor and sanctions against the creditor for a willful violation of the automatic stay.

© Steve Sowell 2022