Bankruptcy News: Supreme Court Holds that Creditors Have Only 14 Days to Appeal Orders Denying Relief from the Automatic Stay

  • Mar 3, 2020

Most creditors know about the “automatic stay”—i.e., the provision in the Bankruptcy Code that prohibits creditors from initiating or continuing debt-collection efforts once the debtor files a bankruptcy petition.  Most creditors also know that, in certain circumstances, they can petition the court for an order relieving them from the automatic stay.  With such an order in hand, the creditor can continue its debt-collection efforts without fear of violating the Code.

But what happens if the bankruptcy court declines to grant a creditor relief from the automatic stay?  Can the creditor immediately appeal the order?  Must the creditor immediately appeal?   Does the creditor have to wait until the close of the entire bankruptcy case before appealing?

In Ritzen Grp., Inc. v. Jackson Masonry, LLC, No. 18-938, 2020 WL 201023 (U.S. Jan. 14, 2020), the United States Supreme Court answered the above-listed questions.  There, Plaintiff Ritzen Group, Inc. (“Ritzen”) filed a breach of contract claim against Jackson Masonery, LLC (“Jackson”) after Jackson reneged on a land sale contract.  Before trial began on Ritzen’s contract claim, Jackson filed for Chapter 11 bankruptcy, thereby automatically staying the lawsuit.  Ritzen subsequently petitioned the bankruptcy court to relieve it from the automatic stay and allow it to continue to pursue its contract claim.  The bankruptcy court denied the petition, prompting Ritzen to file a proof of claim.  A few short months later, the court affirmed Jackson’s Chapter 11 plan—which permanently enjoined all creditors from commencing or continuing their collection efforts—and closed Jackson’s bankruptcy case.

After the case closed, Ritzen appealed the court’s order denying its motion for relief from the automatic stay—but the district court denied Ritzen’s appeal as untimely.  Specifically, the court explained, Ritzen’s petition for stay-relief qualified as a distinct “proceeding” within the “case,” and, therefore, Ritzen had only 14 days from the denial of that order to appeal.  Because Ritzen waited until long after that 14-day period had expired to file its notice of appeal, it effectively waived its right to challenge the bankruptcy court’s decision.

The case ultimately reached the United States Supreme Court, which affirmed the district court’s order.  The Supreme Court essentially followed the reasoning of the district court—i.e., it held that a petition for an order seeking stay-relief is a discrete proceeding, and that, as a result, creditors must immediately appeal the denial of such a petition.

Ritzen is an important case for several reasons.  Perhaps most significantly, Ritzen requires creditors to make strategic decisions concerning the litigation of the debtor’s bankruptcy case much earlier than they might want to.  Indeed, in light of Ritzen, a creditor must determine whether it wants to spend the resources to appeal the denial of its stay-relief petition during the pendency of the bankruptcy case.  This means that creditors must make a guess about whether they will fare better under the terms of the debtor’s yet-to-be finalized bankruptcy plan, or, alternatively, whether their best-bet at optimizing their recovery will come only after obtaining relief from the stay and continuing their debt-collection efforts.

If you’re a creditor that needs advice on how to best protect your rights during the course of a bankruptcy case, call or email the experienced attorneys at Kerrick Bachert, PSC.

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