In re Dev

• Decision Date: 26 October 2018
• Docket Number: CASE NO. 18-00677-5-DMW
• Citation: 593 B.R. 435
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: IN RE: Sunita Anju DEV, Debtor

593 B.R. 435

IN RE: Sunita Anju DEV, Debtor

CASE NO. 18-00677-5-DMW

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division.

Signed October 26, 2018

Travis Sasser, Cary, NC, for Debtor.

John F. Logan, Office Of The Chapter 13 Trustee, Raleigh, NC, for Trustee.

AMENDED ORDER DETERMINING TERMINATION OF AUTOMATIC STAY AND GRANTING RELIEF FROM CO-DEBTOR STAY

David M. Warren, United States Bankruptcy Judge

These matters come before the court upon the Motion for In Rem Relief from Stay Applying 11 U.S.C. § 362(d)(4) ("CFCU Stay Motion") filed by Coastal Federal Credit Union ("CFCU") on March 29, 2018 and the Response thereto filed by Sunita Anju Dev ("Debtor") on April 16, 2018 and upon the Motion for Relief from Stay ("Dev Stay Motion") filed by Prakash Dev ("Mr. Dev") on May 3, 2018 and the Responses thereto filed by the Debtor on May 18, 2018 and June 12, 2018, respectively. The court conducted a hearing on the Dev Stay Motion on June 5, 2018 in Raleigh, North Carolina and continued the hearing until June 13, 2018 in Raleigh, North Carolina, at which time the court conducted a joint hearing on the Dev Stay Motion and the CFCU Stay Motion. Cort I. Walker, Esq. appeared for the Debtor, S. Troy Staley, Esq. appeared for CFCU, Mr. Dev appeared pro se , and Michael B. Burnett, Esq. appeared on behalf of Chapter 13 trustee John F. Logan, Esq. Based upon the court record, evidence presented, and arguments of the parties, the court makes the following findings of fact and conclusions of law:

I. BACKGROUND

The Debtor and Mr. Dev were married on May 6, 1992. During their marriage, on June 24, 2008, they executed a promissory note ("Note") in favor of CFCU for the original principal amount of $189,000.00. The Note requires monthly payments to CFCU in the amount of $1,118.01 for a period of 30 years. Repayment of the Note is secured by a Deed of Trust executed by the Debtor and Mr. Dev which encumbers real property ("Property") located at 404 Silvergrove Drive, Cary, North Carolina. CFCU properly perfected its lien on the Property by recording the Deed of Trust with the Wake County Register of Deeds.

The Property was the marital residence of the Debtor and Mr. Dev until July 1, 2014, at which time the parties separated, and Mr. Dev relocated. The Debtor and their minor child remained and continue to reside at the Property. Upon petition of Mr. Dev, the Wake County District Court, File Number 13 CVD 11338, granted an absolute divorce on September 4, 2015.

Since her separation from Mr. Dev, the Debtor has filed in this district three petitions for relief under Chapter 13 of the United States Bankruptcy Code:¹

(1) Case Number 15-00158-5-SWH filed on January 9, 2015 and dismissed on October 15, 2015 for failure to make plan payments;

(2) Case Number 16-02500-5-DMW ("2016 Bankruptcy") filed on May 11, 2016 and dismissed on September 12, 2017 for failure to make plan payments; and

(3) The current case filed on February 13, 2018.

Each of these cases was filed to, among other reasons, prevent foreclosure of the Property by CFCU. As stated in the CFCU Stay Motion, "[t]he initial foreclosure action was initiated by CFCU in 2016, but due to the bankruptcy filings by the debtor, CFCU has not been successful in completing the process. The prior filings were both filed during the 10-day upset bid period, rendering the foreclosure sales invalid." CFCU Stay Motion, ¶ 12, ECF No. 15.

In each case, the Debtor proposed a Chapter 13 plan providing for monthly conduit payments on the Note and a cure of its pre-petition arrearage. According to a Proof of Claim filed by CFCU in this case on April 30, 2018, at the time of the Debtor's petition, the total balance due under the Note was $200,605.63, and the Note was in default as follows:

 32 monthly payments of $1,118.01 $35,776.32
                Fees 4,574.33
                Funds in Suspense (55.68)
                                                       __________
                  Total Pre-petition Arrearage $40,294.97
                

The scheduled value of the Property securing the Note is $250,000.00.

The CFCU Stay Motion requests relief from the automatic stay imposed by § 362(a) to allow CFCU to complete a foreclosure of its security interest in the Property. Although the CFCU Stay Motion does not pray specifically for relief from the co-debtor stay under § 1301, CFCU's counsel clarified at the hearing that CFCU believes it also requires this relief to foreclose the Property and orally amended the CFCU Stay Motion to include this additional request. CFCU contends that it lacks adequate protection in the Property due to the default on the Note, constituting cause for relief pursuant to § 362(d)(1). Additionally, CFCU asserts that the Debtor's third bankruptcy petition was filed in bad faith, is an abuse of the Bankruptcy Code, and is part of a scheme to delay, hinder and defraud CFCU; therefore, the requested in rem relief should be binding in future cases filed within two years pursuant to § 362(d)(4)(B). CFCU notes that upon similar motions filed in the Debtor's two prior cases, the parties executed consent orders conditioning the continuance of the automatic and co-debtor stays upon timely plan payments for a period of 12 months. The Debtor defaulted in her obligations under both consent orders, resulting not only in modification of the applicable stays but dismissal of the cases.

As part of his action for divorce, on December 15, 2014, Mr. Dev filed a request for equitable distribution of marital property, and in the Dev Stay Motion, he seeks relief from the automatic stay to continue the equitable distribution proceeding in state court. Mr. Dev also prays the court to award him sanctions against the Debtor, asserting that her repeated bankruptcy filings and default on the Note have injured his credit rating and prevented him from obtaining a loan to buy new property, despite his being able to afford to do so. He wants the Property sold to satisfy the Note and outstanding ad valorem tax obligations. The Debtor counters that absent agreement of the parties, the state court cannot order the Property sold, citing Miller v. Miller , ––– N.C.App. ––––, 799 S.E.2d 890, 903 (2017) (holding that for equitable distribution, the court's role is to classify, value, and distribute property, not simply to order that it be sold). She opposes stay relief, arguing that allowing Mr. Dev to continue the equitable distribution action will be costly and could only result in a dischargeable claim against her. The Debtor further contends that there are no grounds for the imposition of sanctions.

At the initial hearing on the Dev Stay Motion, the court questioned sua sponte whether the automatic stay is even in effect, because this case was filed within a year of the 2016 Bankruptcy's dismissal and the stay ostensibly terminated on the 30th day after the petition pursuant to § 362(c)(3)(A). The Debtor responded that any termination of the automatic stay under § 362(c)(3)(A) does not apply to actions against property of the estate such as the Property, citing this district's cases of In re Paschal , 337 B.R. 274 (Bankr. E.D.N.C. 2006) and In re Jones , 339 B.R. 360 (Bankr. E.D.N.C. 2006). To allow it time to review and consider this issue not raised or briefed by the parties, the court continued the hearing on the Dev Stay Motion to be heard jointly with the pending CFCU Stay Motion, noting that CFCU would be equally affected by determination of whether the automatic stay remained in effect as to actions against the Property. At that subsequent hearing, CFCU and the Debtor announced that they had reached a settlement for consideration by the court which conditioned the continuance of the automatic stay and the co-debtor stay upon the Debtor meeting certain terms and conditions.

II. JURISDICTION

This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G) which the court has the authority to hear and determine pursuant to 28 U.S.C. § 157(b)(1). See In re Nexus Commc'ns, Inc. , 55 B.R. 596, 598 (Bankr. E.D.N.C. 1985) (noting that a motion to lift the automatic stay is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G) ). The court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference entered on August 3, 1984 by the United States District Court for the Eastern District of North Carolina.

III. DISCUSSION

Upon the filing of a bankruptcy petition, the automatic stay imposed by § 362(a) operates to stay, inter alia —

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced 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 or to exercise control over property of 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.

11 U.S.C. § 362(a). The automatic stay applies generally to both the CFCU Stay Motion and the Dev Stay Motion. See In re Lordship Dev., LLC , 403 B.R. 772, 773 (Bankr. E.D.N.C. 2008) (holding that the filing of a bankruptcy petition stays automatically a North Carolina foreclosure sale of property of the estate pursuant to §§ 362(a)(3) and (4), even if the petition is filed during the statutory upset bid period); In re Wasserman , No. 14-03676-5-DMW, 2015 WL 1408654, at *1 (Bankr. E.D.N.C. Mar. 25, 2015) (finding that a bankruptcy petition stays equitable distribution proceedings under § 362(a)(1) ).

"The automatic stay is a bedrock principle upon which the Code is built; the importance of § 362 cannot be over-emphasized." In re Seaton , 462 B.R. 582, 591 (Bankr. E.D. Va. 2011) (citing Grady v. A.H. Robins Co. , 839 F.2d 198, 200 (4th Cir. 1988) )....