Automatic Stay- Scope of the Stay

Question 1

28 U.S. Code § 959 - Trustees and receivers suable; management; State laws

Answer 1

(a) Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.
(b) Except as provided in section 1166 of title 11, a trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof.

Question 2

§ 108 - Extension of time

Answer 2

(a) If applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the trustee may commence such action only before the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) two years after the order for relief.

(b) Except as provided in subsection (a) of this section, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1201 or 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 60 days after the order for relief.

(c) Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.

Question 3

Does the automatic stay extend to affiliates or potential co-defendants of a debtor? (Floyd Weed v. Fleet Tire Mart)

Answer 3

Nope

Question 4

Can a creditor use any type of strategy that involves collecting a pre petition debt against a debtor during the automatic stay?(Sportframe v. Wilson Sporting Goods)

Answer 4

No, a creditor may not use and strategy to coerce a debtor to pay any pre petition debt .

Question 5

Can the IRS proceed in seizing property of an estate during an automatic stay? (Whitting Pools)

Answer 5

1. The IRS is required to turn over property, because (1) § 542(a) requires turnover of all property of the estate that may be leased, sold, or used by trustee under § 363, and (2) seized property, in which debtor still had interest, counted as such property
2. Even though Code defines “property of the estate” as “all interests of the debtor in property,” not “all property in which the debtor has an interest,” Court does not take definition to limit what can count as “property of the estate”.
3. IRS had the right to seize and sell property under non-bankruptcy law, but those rights were merely procedural, and meant to protect its substantive property interest – the lien – which is now protected by different bankruptcy procedures.

Question 6

Freezing Accounts During the Automatic Stay (Citizens Bank v. Strumpf)

Answer 6

1. a bank’s imposition of a temporary administrative hold on a debtor’s deposit account did not constitute a setoff and did not violate the automatic stay.

Question 7

When is a claim a claim? (Grady v. A.H. Robins Co)

Answer 7

1. the “conduct” test: a claim arises when the debtor engages in the conduct that ultimately causes harm, even if no harm was discovered prior to plan confirmation.
2. claim arises “when the acts giving rise to [the defendant’s] liability was performed, not when the harm caused by those acts were manifested.”

Question 8

When is a claim a claim? (In re Oldco M Corp)

Answer 8

Court denied priority status to a state’s potential future groundwater remediation costs where the Ch. 11 debtor no longer owned the site and the new owner was honoring its contractual commitment to remediate.

Question 9

Stays of Actions against non-debtors: insurers (Piccinin)

Answer 9

1. S. 105 permits bankruptcy courts to “issue any order, process, or judgment that is necessary or appropriate” to carry out the provisions of the Bankruptcy Code, to extend the protections of the automatic stay to non-debtors.
2. “unusual circumstances” Test: when “there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will effect be a judgment or finding against the debtor.”

Question 10

Stays of Actions against non-debtors: co-debtors (FTL Inc. v. Crestar Bank )

Answer 10

Where the identity of the debtor and the third party guarantor are inexorably interwoven so that the debtor may be said to be the real party against whom the creditor is proceeding or where proceeding against the third party would actually reduce or diminish property the debtor could otherwise make available to the creditors as a whole, a bankruptcy court may exercise equitable jurisdiction to enjoin proceedings against non-debtor third parties under 11 U.S.C. Section: 362.

Question 11

When is an action to enforce a money judgment included in the scope of the automatic stay?

Answer 11

1. according to legislative history, the mere entry of a money judgment by a governmental unit is not affected by the automatic stay, provided that such proceedings are related to that governments police or regulatory powers.(362 exception from the automatic stay)
2. an important factor in identifying a proceeding as one to enforce a money judgment is whether the remedy would compensate for past wrongful acts resulting in injuries already suffered, or protect against potential future harm. Thus, its unlikely that any action which seeks to prevent culpable conduct in futuro, will manifest itself as an action for money judgment or one to enforce a money judgment.
3. pecuniary purpose is within the scope of the stay, whereas as a public policy purpose is not within the scope.