Actions by a creditor to maintain the status quo do not violate the automatic stay, even if the creditor’s activities end up increasing costs for the debtor, the Third Circuit said in a non-precedential opinion.
A couple failed to pay fees for municipal services and ended up with a default judgment against them and a judicial lien on their home. They filed a chapter 13 petition a week before a sheriff’s sale.
At the scheduled sale, the city orally announced a postponement permitted by state procedural rules. Later, the city made five written motions for postponements, which the court granted.
The couple confirmed a plan that included paying the city. Later, they filed an adversary proceeding, intended to be a class action, alleging that the motions to postpone violated the automatic stay and entitled them to damages under Section 362(k)(1).
The bankruptcy court dismissed the suit and was upheld in district court. In an opinion by Circuit Judge Kent A. Jordan, the Third Circuit affirmed on April 26.
Controlling authority in the Third Circuit was Taylor v. Slick, 178 F.3d 698 (3d Cir. 1999), where the appeals court held that an oral announcement of adjournment of a sheriff’s sale did not violate the automatic stay.
The debtors argued that repeated written motions harmed them and violated the stay because they ultimately would be forced to pay for the city attorney’s time. In substance, the debtors believed the city should have dismissed the proceedings and given new notice once the stay was modified.
Judge Jordan rejected this argument because the city was only preserving the status quo. “Preserving the status quo,” he said, “is not always a cost-free proposition.”
Indeed, he said, “Requiring a debtor to pay the incidental price of maintaining the status quo does not upset the status quo but helps to preserve it.”