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In Re Steward

338 B.R. 654 (Bkrtcy. D. N.J. 2006)

FORECLOSURE; BANKRUPTCY—Although a state court can decide whether a foreclosing party has complied with the bankruptcy automatic stay and the bankruptcy court will honor that decision, the state court must have expressly addressed the question, not merely suggested the result by inference.

A debtor filed for bankruptcy protection. The case was dismissed on the recommendation of the United States Trustee because the debtor failed to make all the required pre-confirmation payments. Shortly thereafter, the debtor filed a second bankruptcy action. The debtor lived with his sister in a cooperative apartment she owned. When his sister died, he became the executor of her estate and he was its sole beneficiary of her estate. The co-op association disputed the debtor’s ownership interests in the co-op and filed an action in state court seeking to have him removed as executor, claiming that certain conditions had to have been met before ownership of the co-operative apartment could be transferred to him. The debtor’s attorney advised the association that the state court action violated the automatic stay provisions under 11 U.S.C. 362(a) of the United States Bankruptcy Code. Nevertheless, the association continued with its motion and an order-to-show cause was issued to remove the debtor as executor of his sister’s estate. The debtor sought an order finding that the association violated the automatic stay provisions and the association claimed that the automatic stay was not applicable. First, it argued that the debtor was not eligible to file a second bankruptcy case, since he requested and received a voluntary dismissal of his prior case less than 180 days earlier. The Court, however, found that he was an eligible debtor, noting that for the 180 day rule to apply, the dismissal of the earlier case had to be voluntary. It found that the dismissal of the prior bankruptcy case was not voluntary because it was initiated by the United States Trustee, and not the debtor. The association then argued that under the Rooker-Feldman doctrine, the bankruptcy court could not entertain appellate review of a state court action. According to the association, since the debtor did advise the state court of the automatic stay provisions and the state court did not address the automatic stay, it could be inferred that the state court determined that the automatic stay did not apply. The Court disagreed. It found that the applicability of the automatic stay cannot be determined by implication, and that a state court has to specifically address the automatic stay. Since it did not, the bankruptcy court had the power and authority to do so. The Court determined that the automatic stay did apply, and that the association violated the automatic stay by filing its motion in state court with knowledge of the bankruptcy filing. Lastly, the association argued that the automatic stay did not apply because the association was suing the debtor as the personal representative of the estate, not in his personal capacity. The Court disagreed, finding that an action to remove a debtor as an executor of an estate is a suit against the debtor and violates the automatic stay.

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