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Unfair and Deceptive Acts and Practices: 6.4.3 Discriminatory Extension of Credit

It is a violation of federal and state law to discriminate on a prohibited basis in the granting of credit.142 For example, it is illegal to charge higher interest rates to African Americans or Latino Americans than other consumers.143 It may also be illegal discrimination to target protected groups for unfair or deceptive credit practices.144 That is, it may be illegal for a creditor to target minorities as the prime victims of its abusive practic

Unfair and Deceptive Acts and Practices: 6.4.5 Attempts to Evade Credit Legislation

It is deceptive to have a consumer form a corporation to avoid state usury limits on consumer loans.164 Other schemes to avoid state usury laws may also be actionable.165 A creditor engages in unfair or deceptive conduct by entering into a car “lease” that is really a contract for sale, violating state and federal disclosure laws, disguising the finance charge, creating a large balloon payment at the end, and charging a total of payments greatly in excess of the purchase price of the vehicle.

Repossessions: 8.1.2 Summary of This Chapter

This chapter is not intended to be an exhaustive review of bankruptcy issues, but rather focuses on the uses of bankruptcy in the context of repossessions. Readers seeking further assistance should consult the National Consumer Law Center’s Consumer Bankruptcy Law and Practice, from which parts of this chapter have been drawn.2

Repossessions: 8.2.2.1 The Automatic Stay

One of the most important debtor protections in a consumer bankruptcy is the automatic stay provision in section 362 of the Bankruptcy Code.7 Few other legal steps taken by a consumer can effectuate relief so simply, so effectively, and so dramatically.

Repossessions: 8.2.2.2 The Codebtor Stay

In addition to the automatic stay available in every bankruptcy case, chapter 13 provides a special automatic stay of creditor actions against most people who are codebtors with the debtor.10 This codebtor stay, which can relieve creditor pressure on friends or relatives of the debtor, may be an important reason to file a chapter 13 case.

Repossessions: 8.2.3.1 General Rule

Depending upon the circumstances, the duration of the automatic stay varies significantly. If the circumstances require, the court can end the stay almost immediately, although such immediate relief is very unusual in consumer bankruptcy cases. As a practical matter, the stay is usually not lifted in less than thirty days after the petition has been filed. Indeed, the stay may last for the duration of the case, three to six months in straight chapter 7 cases and up to five years in chapter 13 cases.13

Repossessions: 8.2.4.1 Stay of Legal Proceedings

The acts prohibited by the automatic stay are set out in a series of overlapping statutory provisions.30 Almost all forms of legal actions are brought to an immediate halt by filing the petition.31 Replevin actions, deficiency actions, attachments, garnishments, and executions are among the many types of legal proceedings affected by this provision. No further steps may be taken in stayed proceedings without the permission of the bankruptcy court.

Repossessions: 8.2.4.3 Other Acts Prohibited by the Stay

The automatic stay also prohibits, subject to the exceptions found in section 362(b), “any [other] act to collect, assess or recover a claim against the debtor that arose before the commencement of the case.”46 Creditors may not engage in any collection activity, or in any other acts to try to force the debtor to pay a prepetition claim.47 This prohibition encompasses all types of collection attempts, including those by mail, by phone, in person, and through third parties.

Repossessions: 8.2.4.4 Exceptions to the Automatic Stay

The breadth of the automatic stay is narrowed by twenty-eight exceptions listed in section 362(b). These exceptions have little direct bearing on repossession issues. A detailed discussion of the exceptions that may affect consumer debtors may be found in NCLC’s Consumer Bankruptcy Law and Practice.50

Repossessions: 8.2.5 Notice of the Automatic Stay

Effective and early notice to creditors of the existence of the automatic stay is critical for two reasons. First, a creditor without notice may take actions against the debtor or their property because it is not aware that such actions are precluded. Although these actions are generally void, it may cost the debtor and their advocate substantial time and expense to have these actions reversed. Second, once a creditor has notice, almost any creditor activity in violation of the stay will be illegal and actionable for the debtor.51

Repossessions: 8.2.6.1 Remedies for Violations of the Stay

It has long been held that actions taken in violation of the stay are void.65 This principle means that any actions taken after the bankruptcy filing, including repossessions and judgments, are without legal effect.66 This rule applies whether or not the violation occurred with knowledge of the stay, though there are limited exceptions to this general rule.67

Repossessions: 8.2.6.3 Procedure

Although several courts have held that relief under section 362(k) may be available by motion, it may be preferable to proceed by complaint pursuant to the adversary rules, especially if injunctive relief or a contempt remedy is sought.85 This will eliminate any potential issues about the due process rights of the party defending.

Repossessions: 8.2.7.1 Overview

In a bankruptcy case that is filed to address a repossession, a creditor may submit a motion for relief from the automatic stay in order to proceed with the repossession process. In some cases the creditor will be seeking permission from the bankruptcy court to proceed with the sale of property that has already been repossessed. In others, the creditor will seek relief from the stay in order to repossess the property or otherwise enforce the lien.

Repossessions: 8.2.7.2 Form of Proceeding

The rules provide that the proper method of proceeding for relief from the automatic stay “shall” be by motion under Rule of Bankruptcy Procedure 9014.89 The stay may not be eliminated without court approval, even if the parties agree to relief.90 A prepetition agreement by the debtor that the stay will not apply to a particular creditor may not be enforceable.91

Repossessions: 8.2.7.3 Time Limits for Court Actions

The Code sets out strict time limits for stay litigation.93 Section 362(e)(1) provides that there must be a preliminary hearing on a request for relief from the stay within thirty days; if that hearing is not held, the stay is automatically terminated with respect to the creditor seeking relief.

Repossessions: 8.2.7.4 Grounds for Relief from Stay

The stay may be lifted “for cause”102 or through a court’s exercise of discretion to grant equitable relief to prevent undue harm. Thus, courts may lift stays of litigation affecting the debtor’s financial condition or a nondischargeable debt when the debt would clearly be nondischargeable or when proceedings elsewhere have already significantly progressed.103

Repossessions: 8.2.7.5 Debtor and Trustee Must Be Named As Indispensable Parties

In a proceeding for relief from the stay, the failure to serve both the debtor and the trustee should lead to a motion to dismiss for lack of an indispensable party.129 The debtor usually has possession of property and will be a defendant in legal proceedings if the stay is lifted. The trustee is also an indispensable party because the trustee has at least a possible interest in almost every case involving property.

Repossessions: 8.2.7.6 Debtor Must Conduct Speedy Discovery

Either party may take discovery in connection with a motion for stay relief.131 Although the full range of federal discovery opportunities is available, the short time limits require that discovery, to be meaningful, be completed with great speed. The normal time period allowed by the rules to provide discovery is in every case too long a period to wait unless the parties agree that the stay can continue pending discovery.

Repossessions: 8.2.7.7 Raising Defenses in Response to a Motion for Relief from Stay

A common problem in bankruptcy cases involving secured claims arises when the creditor files an early motion for relief from stay before a consumer has raised disputes as to the size of the secured party’s claim. For example, suppose a chapter 13 debtor has a strip down,132 truth in lending, or unlawful repossession defense (or offset)133 to a secured car loan. Your client’s plan may be to dispute the validity or amount of the car loan creditor’s claim.

Repossessions: 8.2.7.8 Burden of Proof

The Bankruptcy Code provides that the burden of proof in stay litigation is on the party seeking relief from the stay as to the issue of the debtor’s equity in property.