Application of Automatic Stay to Actions By a Debtor

On Behalf of | Apr 11, 2016 | Uncategorized |

The automatic stay only applies as to actions against a debtor and not as to actions filed by a debtor. See, In re Merrick, 175 B.R. 333 (9th Cir. BAP 1994); In re Mitchell, 206 B.R. 204, 212 (Bankr. C.D. Cal. 1997) (“Section 362 stay does not apply where, as here, the debtor is the plaintiff in a lawsuit.”). Even dispositive motions filed against the debtor plaintiff are not a violation of the automatic stay. See, In re White, supra (motion for summary judgment against debtor plaintiff and dismissal of the case did not violate the stay); In re Miller, 262 B.R. 499 (9th Cir. BAP 2001) (demurrer to debtor plaintiff’s suit not stayed).

For example, in Merrick, the debtor plaintiff filed a lawsuit prepetition. Defendants filed motions for summary judgment to dismiss the lawsuit filed by the debtor. Thereafter, the plaintiff filed bankruptcy but the state court still heard the motion and granted it, thus dismissing the case. The trustee then brought a complaint in the bankruptcy case against the defendants for a willful violation of the stay. The BAP held that Section 362 “does not stay the hand of the trustee from continuing to prosecute a pre-bankruptcy lawsuit instituted by the debtor” and thus “the automatic stay should not tie the hand of a defendant while the plaintiff debtor is given free rein to litigate.” Merrick at 337-38.

Debtors must be careful to schedule all assets which includes claims they have pre-petition on which a complaint has or has not been filed. Trustee should make sure to determine quickly whether they intend to prosecute pre-petition claims of a debtor and respond timely to any pending deadlines in a non-bankruptcy action filed by the debtors.

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