After Fulton, a creditor’s refusal to lift the attachment of a bank account is no violation of the automatic stay under any subsection Section 362(a), according to Bankruptcy Judge Mark J. Conway of Wilkes-Barre, Pa.
The October 6 opinion by Judge Conway hints that a creditor must stop legal proceedings after bankruptcy that would impair the debtor’s interest in property, Fulton notwithstanding.
The Pre-Filing Attachment
Before bankruptcy, the creditor obtained a $33,300 judgment against the soon-to-be debtor. Also before bankruptcy, the creditor obtained a writ of execution and served it on a credit union holding an account belonging to the debtor that contained about $1,100.
Service of the writ froze the account and gave the creditor a judicial lien. After service of the writ, the debtor filed a chapter 13 petition. The creditor did not undertake further proceedings in state court after bankruptcy that would have been required to transfer the funds in the account from the credit union to the creditor.
On several occasions after filing, counsel for the debtor contacted the lender and demanded the lifting of the attachment. The lender declined.
A few months after filing, the debtor commenced an adversary proceeding against the lender, alleging a willful violation of the automatic stay under Section 362(k), thereby opening the door to actual and punitive damages and attorneys’ fees. The complaint also sought turnover.
The debtor and the creditor filed cross-motions for summary judgment. Before the hearing, the debtor confirmed a plan promising to pay the creditor in full, and the lender released the funds in the account to the debtor.
Judge Conway was therefore only required to rule about a stay violation and contempt.
Nothing Offended in Section 362(a)
Naturally, Fulton was front and center. See City of Chicago v. Fulton, 141 S. Ct. 585, 208 L. Ed. 2d 384 (Sup. Ct. Jan. 14, 2021). The Supreme Court held “that mere retention of property does not violate the [automatic stay in] § 362(a)(3).” Id. 141 S. Ct. at 589. Section 362(a)(3), the Court said, only “prohibits affirmative acts that would disturb the status quo of estate property.” Id. at 590.
In Fulton, the City of Chicago was itself holding the debtor’s car at the time of the chapter 11 filing. Admitting that the lender had taken no action after bankruptcy, the debtor contended that Fulton did not apply because the credit union was in possession of the funds, not the judgment creditor.
Judge Conway first analyzed the facts under Section 362(a)(3), the same subsection at issue in Fulton. That section prohibits “any action” to obtain possession or exercise control over estate property.
In the case at hand, Judge Conway said that the creditor’s actions were “perhaps more appropriately characterized as inactions.” He paraphrased Fulton as holding that “the mere retention of estate property” is no stay violation.
Applying Fulton, Judge Conway held that the creditor’s refusal to withdraw the prepetition attachment “does not violate Section 362(a)(3).” Rather, the creditor only maintained the status quo. Further, withdrawing the attachment could have deprived the creditor of its judicial lien on the account.
Judge Conway found no violation of the other subsections in Section 362(a).
Subsections (a)(4) through (a)(6) likewise bar “any action” to create or enforce a lien or to recover on a prepetition claim. Given that the creditor had a lien before the filing date, Judge Conway said that the creditor “had to have done something post-petition” to violate subsections (a)(4) or (a)(5). Likewise, he held that the “mere retention of a valid pre-petition” attachment does not violate (a)(4) through (a)(6).
Next, Judge Conway examined Section 362(a)(1). The debtor claimed there was an (a)(1) violation because the subsection does not begin with “any act.” Rather the subsection bars the “commencement or continuation” of a proceeding to collect on a claim.
Judge Conway approvingly cited In re Iskric, 496 B.R. 355 (Bankr. M.D. Pa. 2013), where the court found a stay violation because the creditor allowed the continuation of state court proceedings resulting in the debtor’s incarceration.
Judge Conway read Iskric as “an example of a factual scenario where if a creditor has put a process into effect that, without intervention, causes a change in the status quo as to property of the estate or the debtor, then a creditor must act to avoid that change.”
Cases like Iskric did not apply, in Judge Conway’s opinion, because the creditor “did nothing to further or ‘continue’ the garnishment process.”
Similarly, the creditor did not violate Section 362(a)(2), prohibiting enforcement of a judgment. Judge Conway held that the failure to withdraw the attachment “cannot be construed as, or equated with, taking an affirmative action to enforce a judgment.”
In short, Judge Conway granted summary judgment in favor of the creditor by dismissing the complaint.
After Fulton, a creditor’s refusal to lift the attachment of a bank account is no violation of the automatic stay under any subsection Section 362(a), according to Bankruptcy Judge Mark J. Conway of Wilkes-Barre, Pa.
The October 6 opinion by Judge Conway hints that a creditor must stop legal proceedings after bankruptcy that would impair the debtor’s interest in property, Fulton notwithstanding.
The Pre-Filing Attachment
Before bankruptcy, the creditor obtained a $33,300 judgment against the soon-to-be debtor. Also before bankruptcy, the creditor obtained a writ of execution and served it on a credit union holding an account belonging to the debtor that contained about $1,100.
Service of the writ froze the account and gave the creditor a judicial lien. After service of the writ, the debtor filed a chapter 13 petition. The creditor did not undertake further proceedings in state court after bankruptcy that would have been required to transfer the funds in the account from the credit union to the creditor.