Sixth Circuit Court of Appeals Reverses District Court Ruling on Automatic Stay in Foreclose Case

Case Name: IN RE: Ronald J. Smith

Court: United States Court of Appeals – Sixth Circuit

Date of Opinion: June 9th, 2021

Judges: Judges Gibbon, Kethledge, & Murphy

Overview:  Debtor in a Chapter 13 bankruptcy case argues that the bankruptcy court should dismiss his case, according to the U.S. Bankruptcy Code.

Background: This Bankruptcy case concerns a debtor who filed for chapter 13 protection right before a bank foreclosed on his home, in the effort to prevent the sale.  The debtor, Ronald J. Smith then filed for a dismissal of his bankruptcy case right after the sale of the home was stopped.

The bankruptcy court dismissed the case as per Smith’s wishes as 11 U.S.C. § 1307(b) plainly states that a bankruptcy court must do so if the debtor wishes and the bank appealed to the circuit court for a possible reversal. 

The court opinion states that Smith purchased a home in 2004 and subsequently defaulted on the loan from the bank.  Smith then filed for Chapter 13 protection which created an automatic stay on the foreclosure proceedings.  He proceeded to file for Chapter 13 protection on three other occasions after the bank threatened to foreclose on his home. 

The court goes on to say that at no time did the lower bankruptcy court sanction Smith for his continued use of the bankruptcy laws to usurp foreclosure on his home.  In addition, the bank did not seek relief from the automatic stay.  Instead, the lower bankruptcy court lifted the stay for a period of two years.  Smith then appealed this decision to the district court, which continued the two year automatic stay.  Smith appealed to the circuit court.

Analysis:  The court states that under Section 1307(b) of the Bankruptcy code, if a debtor in a Chapter 13 case requests for the case to be dismissed, the court must grant the motion.  The bank argues that Smith filed for bankruptcy protection in bad faith and thus, the automatic stay should continue.  However, the U.S. Supreme Court rejected this legal opinion.

Conclusion:  The Sixth Circuit Court of Appeals ruled that the automatic stay should be put back in place and that the bankruptcy court should dismiss Smith’s Chapter 13 case.

Steven M. Cohen
Law Librarian | + posts

Steven M. Cohen is a law librarian at a midsize law firm in New York City.  He was the creator of Library Stuff, one of the first library blogs, which lasted over 15 years.  He obtained his MLS from Queens College in 2002.  His passions include legal research, reading novels, and rooting on his favorite sports teams.