The automatic stay is the hallmark of bankruptcy, so when the judge lifts the stay to permit a lender to foreclose, we tend to think the curtain has come down on our client as homeowner.  Well, maybe not, or at least, not yet.

In some cases, the road to foreclosure seems to be a wandering path rather than an expressway.  Case in point:  relief from stay was granted in my client’s case on April 15th.  The notice of default, the first step in the statutory foreclosure process, was not recorded until six months later.

Those six months are months the clients lived payment free in the house.  They continue to try to wend their way through the lender’s loan modification process.  Even if they aren’t successful in getting a modification, it will be at least another 4 months before the lender can hold a foreclosure sale.

This is a recent example that reinforces a story I’ve told before, about the client who moved his family out of their large comfortable home as soon as he saw they could not keep it.  They rented a house, and worked on preparing for a bankruptcy filing.  More than a year later, when we were ready to file, the lender had still not taken the first step in foreclosure.  Twelve months the client paid rent, when he could have stayed where he was, at no cost.

Bankruptcy works on notice of the filing,  to the creditor who is bound by the automatic stay to stop collection.  Sounds simple, right?  Well, it got more complicated with BAPCPA, the supposed bankruptcy “reform” act.

Take a look at any credit card bill.  It has an address on the bill to which you send the payment.  Dollars to doughnuts, there is a second address somewhere on that bill for “customer support”, “billing inqueries”, or “correspondence”.  That’s the address you want in your bankruptcy schedules.

I take issue with my colleague David Leibowitz’s recent post on whether creditors can call after bankruptcy where he  says that it is the payment address that provides notice to the creditor.  Section 342(c) as amended by BAPCPA  provides that effective notice of the commencement of the case is notice to the correspondence address provided by the creditor.

This was added at the behest of creditors who found it inconvenient to honor the automatic stay and wanted to hedge their liability for continuing collection actions despite the bankruptcy filing.

So, your ability to seek damages for violation of the automatic stay may depend on the address you provided for the creditor.  Thus my repeated charge to clients:  bring me a bill for each creditor.  Let’s get it right.

I have more actions against creditors for violation of the automatic stay going right now than I have brought in the entirety of my nearly 30 year career. What is it that makes creditors so heedless of a federal court injunction?

I have clients complaining of staid banks like Bank of America calling multiple times a day after they got notice of the bankruptcy; Chase trying to foreclose on a client’s house despite the automatic stay; the State of California levying against a Chapter 13 debtor for the second time in two years, well after the bankruptcy case was filed.

Is it desperation on the part of creditors? A general disdain for the law? Budgets that don’t permit training of staff?

I don’t know, but my mission is to make this scofflaw attitude costly for creditors. Debtors are entitled to a respite from collection efforts. It’s about time creditors got the message.

My colleague Nick Ortiz explained cash collateral as primarily a business bankruptcy concept: a creditor with a lien on income producing assets has a lien on the cash that asset produces as well. But you don’t have to have a traditional business to have cash collateral, and the duties it brings in a bankruptcy reorganization.

The issue usually comes up with respect to rental real estate: the monthly rent is cash collateral. In consumer cases, it is often the taxing authorities who have a blanket lien on all of the debtor’s assets. The other, obvious but oft forgotten lien holder is the mortgage lender, whose security documents undoubtedly give it a lien on the income produced by the mortgaged property.

In any bankruptcy case in which the debtor remains in possession of his assets under the protection and supervision of the bankruptcy court, the rights of the secured lender in the cash collateral must be respected. The debtor is prohibited from using cash collateral without either the consent of the secured creditor or a court order. Fail to get either consent or an order and appointment of a trustee, conversion or relief from stay are likely to follow.