California Court Discusses Standing to Object to Relief from an Automatic Stay in a Bankruptcy Matter

Bankruptcy debtors are granted relief from debt collection efforts via an automatic stay. In some instances, though, the courts will find it appropriate to lift the stay and allow creditors to pursue claims during the pendency of a bankruptcy proceeding. While debtors can argue that a stay should not be lifted, non-debtors do not have the same rights. This was demonstrated in a recent California ruling in which the court dismissed a party’s appeal of an order denying a motion for reconsideration of relief from an automatic stay on the grounds the party lacked standing. If you need assistance pursuing debt relief, it is in your best interest to speak to a dedicated California bankruptcy lawyer regarding your options.

History of the Case

It is reported that the debtor filed a Chapter 13 bankruptcy petition in February 2015. The court approved her plan in April 2015. Neither the appellant nor the defendant were listed as creditors in the debtor’s debt schedules or involved in the bankruptcy in any way. Later that year, the appellate obtained a loan from the defendant that was secured by a deed of trust. The appellant defaulted on the loan in 2017, after which the appellant recorded a deed of trust with a value of $2 million in favor of the debtor to secure a debt it owed the debtor for legal fees.

Allegedly, the debtor did not amend her schedules to include the deed or the obligation it secured or report the deed to the bankruptcy court. The defendant held a foreclosure sale on the property in December 2017 and gave notice of the sale to the debtor. It then purchased the property via a credit bid and later sold it to an unrelated third party. Litigation ensued between the defendant and the appellant, and at one point, the appellant’s principal testified that the foreclosure violated the debtor’s automatic stay and impacted the sale. The defendant then filed a motion to annul the stay, which was unopposed. The bankruptcy court granted the motion, after which the appellant moved for reconsideration. The bankruptcy court denied the motion, and the appellant appealed.

Standing to Object to Relief from an Automatic Stay

On appeal, the appellant argued that it had standing to challenge the order granting the annulment of the stay. The court explained that when a party pursuing an appeal lacks standing, the court lacks jurisdiction over the appeal. Thus, a party seeking an appeal must establish both prudential and constitutional standing. Constitutional standing is derived from the case and controversy requirement of Article III of the constitution, which requires a plaintiff to demonstrate harm in fact, causation, and redressability.

Here, the appellant failed to establish constitutional standing in that it did not identify any concrete or particularized injury arising from the annulment of the stay, as it was not a debtor or creditor of the debtor. As such, the court dismissed the appeal.

Confer with a Trusted Bankruptcy Attorney

Debtors who file for bankruptcy have numerous protections under the law, but debtors who are not a party to a bankruptcy action are not afforded the same rights. If you have questions regarding the debt relief available through bankruptcy, it is smart to confer with an attorney. Matthew D. Roy is a trusted California bankruptcy lawyer who can advise you of your rights and help you to seek the best legal outcome available under the facts of your case. You can contact Mr. Roy through the form online or by calling (916) 361-6028 to set up a meeting.

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