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Serial Filings That Block a Creditor: Better Not to Obtain More Relief Than You Need

In re Ross, 838 F.3d 779 (3rd Cir. 2017) –

A debtor filed bankruptcy to block a foreclosure. When he sought to voluntarily dismiss the case, the bankruptcy court granted the request but also enjoined him from filing at any time in the indefinite future. The order was appealed first to the district court and then to the Third Circuit.

After the debtor and his wife fell behind in their mortgage payments, the mortgagee filed a foreclosure action, obtained a default judgment and then scheduled a sheriff’s sale. The day before the sale, the debtor filed a bankruptcy petition, which triggered the automatic stay and blocked the sale. This bankruptcy case was dismissed after the debtor failed to make scheduled payments.

The mortgagee rescheduled the sale, and the debtor filed another bankruptcy petition on the day of the rescheduled sale. The bankruptcy court granted the mortgagee relief from the automatic stay, and the sale was yet again rescheduled. This time, the debtor’s wife filed bankruptcy to delay the sale. The wife’s case was soon dismissed for failure to obtain required prepetition credit counseling.

In the meantime, the mortgagee filed a motion in the debtor’s second case to either convert from a chapter 13 to a chapter 7 case or dismiss the case based on bad faith. After the bankruptcy court denied the debtor’s motion to postpone a hearing on the mortgagee’s motion, the day before the hearing the debtor sought to dismiss his case.

The court proceeded with the hearing on the mortgagee’s motion notwithstanding the debtor’s failure to appear. The mortgagee expressed a preference for converting the case, but if the court chose to dismiss the case asked the court to enter either (1) an injunction “barring future filings [of both debtor and his wife] for 180 days” or (2) an injunction “barring the use of the automatic stay in any future filings by either one of them.”

The bankruptcy court expressed concerns that the debtor’s wife did not receive due process because she was not given notice of the hearing and suggested that the mortgagee file a separate request for an injunction the against the wife. Accordingly, following the hearing the court issued an order it did not address the wife but did dismiss the debtor’s case “with prejudice,” and provide that “the Debtor is not permitted to file another bankruptcy case without express permission from this Court.”

As suggested by the court, the mortgagee filed a new request in the bankruptcy case of the debtor’s wife asking for the same two alternatives it requested in the debtor’s case (180-day bar or blanket relief from the automatic stay). In response, the bankruptcy court enjoined the debtor’s wife from filing bankruptcy for 180 days and decreed that the automatic stay would not prevent the mortgagee from enforcing its mortgage foreclosure judgment. The mortgagee did not ask for, and the bankruptcy court did not grant, the broader indefinite injunctive relief granted against the debtor.

During the appeal process, the mortgagee completed the