Attorney Fees Intended To Pressure Debtor Unnecessary

Posted by NCBRC - May 27, 2021

The creditor’s attorney fees attributable to its repeated motions to continue foreclosure proceedings during the debtor’s pending bankruptcy cases were unnecessary given that the automatic stay was in place, and the bankruptcy court deducted those fees from the allowed claim. In re Peta, 2021 WL 608233 (Bankr. E.D. Pa., Feb. 10, 2021) (case no. 2:19-bk-13264).

The creditor Bank issued a $100,000 line of credit to the debtor and his spouse which was secured by a second mortgage on their residence. Between September, 2013, and May, 2019, the debtor filed four chapter 13 bankruptcy cases all of which were dismissed prior to completion. After the debtor’s first bankruptcy petition was dismissed, the creditor initiated foreclosure proceedings and obtained a default judgment in the amount of $111,988.40. The foreclosure proceedings were stopped when the debtor filed his second bankruptcy petition and, when that case was dismissed, the creditor scheduled a Sheriff’s sale which was continued upon the debtor’s filing of his third bankruptcy.

In the current bankruptcy, the creditor filed a proof of claim for $194,337.89, including the amount necessary to cure the default, and $99,235.25 in attorneys’ fees and costs. The action was before the court on the creditor’s motion for relief from stay to proceed with foreclosure, and the debtor’s objection to the portion of the creditor’s proof of claim attributable to attorney’s fees.

Under section 502(a) a proof of claim is deemed allowed unless the party objecting to it presents evidence to undermine its prima facie validity. The court quickly rejected the bulk of the debtor’s complaints about the creditor’s legal invoices as failing to adequately specify the actions he objected to. The same infirmity, however, did not apply to the debtor’s objection to the $13,635.52 in fees related to the creditor’s 21 motions for continuance, which the creditor explained were intended to “’keep the pressure on’ the Debtor to comply with his post-petition obligations.” Here, the court agreed that the repeated motions filed while the automatic stay was in place were unnecessary. The court therefore partially sustained the debtor’s objection and decreased the amount of the creditor’s allowed claim by $13,635.52.

In its motion for relief from stay, the creditor argued that the debtor’s serial bankruptcy filings were intended to hinder or delay the exercise of its rights and justified relief under section 362(d)(4). The court disagreed, finding that bankruptcy filings on the eve of a sheriff’s sale are common and not inherently bad faith. Here, while his previous three bankruptcies were dismissed, the debtor pursued them to a degree indicating a good faith intent to complete them.

The creditor also argued that the debtor’s current arrears on the loan in addition to his history of non-payment amounted to a lack of adequate protection under section 362(d)(1). Because it was not clear from the record what the debtor’s recent payment history was and how COVID 19 impacted his payments, the court held this motion in abeyance to be addressed at a later scheduled hearing.

The debtor’s motion for reconsideration, filed on February 23, 2021, is still pending.

Peta Bankr ED Pa


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