Timely Bankruptcy voided foreclosure sale in New York

Foreclosure Sale was voided due to timely bankruptcy in New York

In re: SYLVIA SCHLEIER, Debtor.

Case Law
Case No. 02-30138, (Chapter 13)
UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, POUGHKEEPSIE DIVISION
290 B.R. 45; 2003 Bankr. LEXIS 197

March 14, 2003, Decided

Facts: On the date of the foreclosure sale, debtor A testified that she filed the petition for bankruptcy before 9:05 a.m. On said time, when she presented the petition to the clerk, and attempted to pay the filing fee in cash, the clerk took the petition, sat down with the debtor, told the debtor the clerk's office would not accept cash, explained what other documents were needed, and then file-stamped the petition at 9:36 a.m. The foreclosure sale occurred between 9:15 and 9:20 a.m. The filing was found to have taken place before the sale, and foreclosure sale was void under 11 U.S.C.S. § 362(a). Debtor A was prepared and offered to pay the filing fee, as mandated under Fed. R. Bankr. P. 1006(a), in cash when she handed the petition to the clerk. It was the clerk of court who was not prepared to accept the filing fee until debtor A offered it in a form other than cash. Debtor now moved to nullify the sale on ground of the timely filing of the petition and the unchallenged testimony that the sale price was so low that it shocked one’s senses.

Issue: Whether the foreclosure sale was valid?

Ruling: No. This Court holds that the date and time-stamp on a bankruptcy petition creates a rebuttable presumption as to when it was filed. To rebut that presumption, a debtor must submit evidence that demonstrates the petition was filed at a different time, i.e., earlier. The evidence must show that when the petition was presented to the office of the clerk, it was in acceptable filing form, and was received by a representative of that office.

In this case debtor A has met that standard. She demonstrated that her petition was filed at or before 9:05 a.m. on June 28, 2002 when (i) she presented it to the clerk's office in acceptable filing form, (ii) it was received by the clerk's office, and (iii) she was ready and able to pay the filing fee in. It was demonstrated that the property was struck A’s filing took place before the property was struck down.

The automatic stay takes effect when the bankruptcy petition is filed. After that point, actions taken in violation of the stay are void. Here, the foreclosure sale is void because it took place after A filed her petition.

Lesson Learned: The central purpose of Chapter 13 is to allow the honest but unfortunate debtor a fresh start. Section 362(a) helps codify this fundamental principle. Section 362(a) provides in relevant part that a petition filed under Section 301, 302, or 303 of this title operates as a stay. It is effective upon the filing of the case. It is not a judicial injunction that depends on notice. For a debtor to capitalize on this provision, it is important that all the technical requirements of the law be followed.

By Kevin Levonas and Jerry L.