482 B.R. 697
Bankr. D. Mass.2012Background
- Debtor filed third Chapter 13 case; two prior cases were dismissed for failure to comply with orders.
- Foreclosure of Debtor's 85 Spruce Street, Hyannis property occurred on Feb 28, 2012 post-petition despite the bankruptcy filing.
- Defendants proceeded with foreclosure based on presumed ineligibility under 11 U.S.C. § 109(g) and § 362(b)(21).
- Debtor commenced adversary proceeding seeking to void the foreclosure and possibly punitive damages/attorney’s fees for stay violation.
- Court held that the Defendants’ Motion to Dismiss should be denied; the stay issue involves a merits evaluation of eligibility and willfulness.
- Foreclosure notices indicated Fannie Mae as owner; the property was listed for sale online after foreclosure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the automatic stay was violated post-petition | Debtor argues stay remained in effect pending eligibility ruling | Defendants contend stay did not apply due to § 362(b)(21)(A) because debtor ineligible | Stay issue requires eligibility determination; cannot dismiss on this ground |
| Whether Debtor was ineligible under 11 U.S.C. § 109(g) to be a debtor | Willfulness must be proved; eligibility not a per se bar | Past dismissals imply willful failure, triggering ineligibility | Eligibility is threshold; requires factual determination of willfulness; not per se barred by prior dismissals |
| Whether § 362(b)(21) provides an automatic stay exception for ineligible debtors | § 362(b)(21) is triggered only after a finding of ineligibility | Relies on inferences from prior conduct to claim automatic stay does not apply | Not determinative on motion to dismiss; factual inquiry needed |
| Whether the court may adjudicate the Debtor’s stay/eligibility defense on a Rule 12(b)(6) motion | Affirmative defenses cannot be decided on a 12(b)(6) motion | Such defenses may be raised early to avoid stay violations | Affirmative defenses to stay/eligibility not appropriate for dismissal; require record/ evidentiary development |
| Whether a creditor may foreclose without court relief when an automatic stay exists | creditor cannot foreclose while stay in effect | Foreclosure may proceed if § 362(b)(21) applies; not a per se violation | Foreclosure timing depends on eligibility; decision pending; not dismissed on this issue |
Key Cases Cited
- In re Colon Martinez, 472 B.R. 137 (1st Cir. BAP 2012) (inference of willfulness requires pattern of noncompliance; facts determine willfulness)
- Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969 (1st Cir. 1997) (automatic stay basics; void vs voidable distinctions)
- In re Pappalardo, 109 B.R. 622 (S.D.N.Y. 1990) (willfulness standards in stay context)
- In re Lundquist, 371 B.R. 183 (Bankr.N.D. Tex. 2007) (foreclosure/post-petition actions and stay)
- In re DiVittorio, 430 B.R. 26 (Bankr.D. Mass. 2010) (First Circuit later aff'd 670 F.3d 273; Iqbal/Twombly standards quoted)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard: plausibility)