Trends and New Developments: Learning from Court Orders

When I see a similar order entered in two or three (or more) chapter 13 cases, I begin to watch for new developments or trends:  Is the court communicating an expectation that a particular procedure should be followed?  Are multiple practitioners making the same mistake but the court can only fix the problem one case at a time?

Recently I’ve seen a couple of issues that warrant attention and (re-) education.

The first issue relates to motions to extend the automatic stay.  I’ve noticed that the court has entered the same order in different cases (filed by different attorneys) to  summarily overrule a motion to extend the automatic stay.  The orders, which have been entered within a day or so after the motions are filed, say:

Debtor(s)’ Motion/Application to Extend the Automatic Stay (“Motion”) is hereby DENIED without prejudice because (a) no hearing is scheduled within 30 days of the filing of this bankruptcy case as required by 11 U.S.C. § 362(c)(3)(B), OR (b) no affidavit of the Debtor(s) is filed in support of the Motion.

 It’s unfortunate that debtors’ attorneys are so frequently committing one of these two errors that the court can enter this standard order.   But attorneys should be grateful for the early notice that their motions are deficient.  By summarily overruling the motion, the court is educating the attorney and giving the attorney time to fix the error, hopefully before the 30th day after the petition was filed.  For more information on the 30-day deadline and on why an affidavit is required, see my previous post on extending the automatic stay.

The second trend relates to motions for payment of insurance proceeds on collateral securing a claim that is being paid through the plan.  It is customary in the EDKY for debtors’ attorneys to file a motion for an order: directing the insurance company to pay the proceeds to my office; directing me to pay the lienholder the balance of its secured claim; and authorizing me to remit any surplus proceeds to the debtor.

Lately in a few cases the court has entered its own orders partially sustaining and partially overruling these motions.  The court’s orders direct the insurance company to pay the proceeds to my office; and direct me to pay the balance owed on the creditor’s secured claim.  However, the court is overruling the motion (without prejudice) to the extent it seeks a distribution of surplus funds to the debtor.  The reason for overruling that part of the motion is because the motion was not served on the lienholder.  Even more specifically, the court notes in the order that the lienholder was not served in accordance with Rule 7004.

The creditor’s lien attaches to proceeds of its collateral.  The secured creditor’s rights in its collateral and proceeds are enforceable if the case were dismissed before completion.  Yes, the car has been wrecked.  Yes, the debtor needs transportation.  Yes, the debtor might have acquired equity in the property by paying down the secured debt during the chapter 13 case.  But the creditor’s rights in the insurance proceeds cannot be extinguished without notice.

For a refresher on how to deal with insurance proceeds on a wrecked car, see my prior post on insurance proceeds, and download the PDF materials referenced in that post.  And make a note to serve the motion on the lienholder as if you were serving a complaint and summons under Rule 7004.


One comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s