Houston U.S. District Court: Debtor not stayed by bankruptcy stay

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Jan 25, 2014

In an opinion by Houston U.S. District Judge Melinda Harmon on Jan. 8, 2014, the court held that a couple that filed chapter 13 after they had sued Wells Fargo Bank, N.A. and other defendants, could not claim that their U.S. District Court case in which they were the plaintiffs, was stayed or stopped by the "automatic stay" of 11 U.S.C. Section 362(a). Riley v. Wells Fargo Bank, N.A. et al, Civil Action No. H-13-0608, U.S. District Court, SD Texas 2014.

The Rileys had sued Wells Fargo and the other defendants for violations of the Federal Debt Collection Practices Act, slander of title/to quiet title, fraud/misrepresentation grounded in violations of the Texas Deceptive Trade Practices Act, negligent supervision of employees and agents, and common law fraud.

The defendants all filed motions to dismiss for failure to state a claim after the filing of the chapter 13 bankruptcy, but the debtors did not respond to them. Judge Harmon stated in her opinion that:

As a matter of law, and by its own terms, as argued by Wells Fargo, the automatic stay under 11 U.S.C. § 362(a) only stays proceedings brought "against the debtor." This suit is a proceeding brought by the debtor. In re Versoy, 306 Fed. Appx. 65, 68-69 (5th Cir. Jan. 5, 2009), citing McMillan v. MBank Fort Worth, N.A., 4 F.3d 362, 366 (5th Cir. 1993). Therefore the Court overrules Plaintiffs' objection. Furthermore as pointed out by Crestmark on December 30, 2013 the bankruptcy judge issued an an order abating the Rileys' amended objection to Wells Fargo's proof of claim and "ORDERED that the Objection is hereby abated pending a final ruling by Judge Melinda Harmon on the Defendants' Motion to Dismiss that is pending in Civil Action No. H-13-0608." (#27, Ex. 1)

Moreover after reviewing the Magistrate Judge's memorandum and recommendation and the applicable law, the Court fully agrees with her findings and conclusions.

Unless this case is successfully appealed to the 5th circuit, it's clear that litigants that have filed a court case before filing bankruptcy as plaintiffs, need to continue to litigate it, if they care about the outcome of it.

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