Bank of Commonwealth v. Bevan, Civ. A. No. 80-71535.

• Decision Date: 09 February 1981
• Docket Number: Civ. A. No. 80-71535.
• Citation: 13 BR 989
• Parties: BANK OF the COMMONWEALTH, a Michigan banking corporation, Appellant, v. Harold R. BEVAN and Herbert Keidan, as Trustee, In Re: Bankruptcy No. 79-04350-H, Appellee.
• Court: U.S. District Court — Western District of Michigan

13 B.R. 989 (1981)

BANK OF the COMMONWEALTH, a Michigan banking corporation, Appellant, v. Harold R. BEVAN and Herbert Keidan, as Trustee, In Re: Bankruptcy No. 79-04350-H, Appellee.

Civ. A. No. 80-71535.

United States District Court, E.D. Michigan, S.D.

February 9, 1981.

Donald Cadotte, Detroit, Mich., for appellant.

Rae Lee Chabot, Birmingham, Mich., for appellee.

OPINION

GUY, District Judge.

This case comes before the court on appeal from an Order enforcing an automatic stay of proceedings under 11 U.S.C. § 362 entered by the bankruptcy judge on March 4, 1980. The order indefinitely extended a statutory redemption period that began to run following a foreclosure sale of the residential property of the debtor, the defendant named in this action. Plaintiff, as mortgagee and purchaser at the foreclosure sale, has filed a motion for summary judgment¹ alleging that the bankruptcy court erred in finding that the debtor's remaining interest in the residential property involved in this suit was "property of the estate" as defined in 11 U.S.C. § 541, and that the court wrongly stayed the statutory redemption period pursuant to 11 U.S.C. § 362(a).

The facts presented in this case show that the debtor gave a second mortgage on his home in West Bloomfield, Michigan, as security for a corporate loan. The residential property was held by the defendant and his wife as tenants by the entireties. The defendant defaulted on the terms of the second mortgage and the plaintiff as the mortgagee on the second mortgage commenced foreclosure proceedings. A foreclosure sale occurred on December 18, 1979, at which time a Sheriff's Deed on Mortgage Sale was issued to the second mortgagee as purchaser. The deed was recorded with the Oakland County Register of Deeds at 11:33 A.M. on the day of sale, December 18, 1979. Later that same day, at 3:24 P.M., the defendant filed a petition for reorganization under Chapter 11 of the Bankruptcy Code.² The bankruptcy court's order of March 4, 1980, stayed the expiration of the statutory period of redemption which would have ended on June 18, 1980.

Before the court can address the issue of the stay under 11 U.S.C. § 362(a), the court must first determine whether the debtor's remaining interest in the residential property involved in this suit is "property of the estate" and thereby allegedly subject to the automatic stay provisions of the Bankruptcy Code. In Michigan, the debtor's interest in real property subsequent to a foreclosure sale includes a right of redemption which allows the debtor a statutorily prescribed period of time to "redeem" the property from the purchaser at the sale.³ M.C.L.A. § 600.3101 et seq; M.C.L.A. § 600.3201 et seq. While the nature and extent of the debtor's interest in real property is determined by application of state law, the Bankruptcy Code defines those interests in property which become "property of the estate" and hence within the jurisdiction of the bankruptcy court. 4 Collier on Bankruptcy ¶ 541.071 (15th ed. 1980). Section 541 of the Bankruptcy Code defines "property of the estate" as follows:

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located:

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.

Accordingly, the statutory right of redemption created under state law generally passes into the estate of the debtor if the period of redemption has not expired at the time the petition is filed. 4 Collier on Bankruptcy, ¶ 541.073 (15th ed. 1980). As the statutory right of redemption had begun only a few hours prior to the defendant's filing of a Chapter 11 petition, the right to redeem became property of the estate by operation of § 541 as of the time of filing.⁴

Having determined that the right of redemption became property of the estate, the issue directly before the court concerns the bankruptcy judge's order which indefinitely stayed the expiration of the statutory redemption period by operation of § 362(a). Upon the filing of a petition in bankruptcy, an automatic stay takes effect which precludes certain actions against the debtor or property of his estate. 11 U.S.C. § 362(a). Section 362(a) of Title 11 provides in pertinent part:⁵

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title operates as a stay, applicable to all entities, of —

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

As the legislative history of § 362(a) indicates:

The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor\'s property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor\'s assets prevents that.

H.R.Rept.No.95-595, 95th Cong., 1st Sess. 340 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6296. Section 362(a) codifies in one section those provisions of the previous bankruptcy rules dealing with the stay of actions and enforcement of liens. See, Bankruptcy Rules 401, 601, 8-501, 9-4, 10-601, 11-44, 12-43, 13-401. The scope of protection afforded by the stay is extremely broad. Matter of R.S. Pinellas Motel Partnership, 2 B.R. 113 (M.D.Fla.1979).

Defendant in this action asks the court to affirm that § 362(a) automatically tolls the running of the statutory redemption period upon the filing of a bankruptcy petition. This would in effect grant the trustee an indefinite period of time to redeem the property.⁶ While the language of § 362(a) fails to explicitly address the running of time periods, other provisions of the Bankruptcy Code speak directly to the issue.

Section 11(e)⁷ of the old Bankruptcy Act gave the trustee a minimum of sixty days to redeem property of the debtor.⁸ If the statutory redemption period exceeded the minimum amount of time established by the Bankruptcy Act, the trustee had until the later date to redeem the property. The extension of time provision found in § 11(e) of the Bankruptcy Act finds an identical counterpart in § 108 of the new Bankruptcy Code:

(a) If applicable law, an order entered in a proceeding, or an agreement fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the trustee may commence such action only before the later of — (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; and

(2) two years after the order for relief.

(b) Except as provided in subsection (a) of this section, if applicable law, an order entered in a proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure or perform, as the case may be, before the later of —

(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; and

(2) 60 days after the order for relief.

(c) Except as provided in section 524 of this title, if applicable law, an order entered in a proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of —

(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; and

(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, or 1301 of this title, as the case may be, with respect to such claim.

Section 108(b), as it effects the amount of time given the trustee to file "any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act," grants the trustee a minimum of sixty days or the running of the period, whichever is longer, in which to act.

Under the language of § 362(a), an automatic stay applies to "acts," "proceedings" and their "continuation," and "enforcement" of judgments...