In Re: Maximo Morillo
- Philip Halpern
- 7:19-cv-08183
- U.S. District Court · Southern District of New York
- 7
In Morillo v. Wells Fargo, Judge Halpern affirmed denial of an extension of bankruptcy’s automatic stay because Morillo did not show good faith.
Maximo Morillo and Wells Fargo Bank, N.A., as trustee, in connection with the requested extension of the automatic stay affecting Wells Fargo’s mortgage and foreclosure-related rights.
What happened
In Maximo Morillo v. Wells Fargo Bank, N.A., Morillo appealed a bankruptcy judge’s refusal to extend the automatic stay in his second Chapter 13 bankruptcy case. The stay generally pauses creditors’ collection efforts, but because Morillo had filed another bankruptcy case within the previous year, it would end after 30 days unless extended.
Morillo argued that his second filing was made in good faith, pointing to his attendance at hearings, payments, documents, and required court schedules. The court considered the circumstances surrounding the property, Morillo’s bankruptcy history, questions about ownership and possible collusion, and whether the second filing sought to avoid an earlier bankruptcy ruling.
Judge Halpern affirmed the bankruptcy court’s order. He held that Morillo did not provide clear and convincing evidence of good faith and that the bankruptcy judge’s factual findings were supported by substantial evidence. The court directed the clerk to close the case.
The detailed version
- In Re: Maximo Morillo · No. 7:19-cv-08183
- Philip Halpern
- May 19, 2020
Background
Maximo Morillo appealed an order by Bankruptcy Judge Sean M. Lane denying Morillo’s motion to extend the automatic stay in Morillo’s second Chapter 13 bankruptcy proceeding. An automatic stay generally pauses creditors’ efforts to collect debts or enforce certain remedies after a bankruptcy petition is filed.
The dispute involved real estate at 523 Tinton Avenue in the Bronx. The opinion states that Morillo purported to own the property and that Wells Fargo Bank, N.A., as trustee, held the first mortgage. A foreclosure judgment had been entered in Wells Fargo’s favor against Ricardo Garcia, the prior owner. Garcia later executed a deed transferring the property to Morillo, but also submitted short-sale materials identifying himself as the property’s owner.
Morillo filed his first Chapter 13 bankruptcy petition on September 15, 2017, after a foreclosure sale had occurred and three days after the sale was vacated. He listed the property as his primary residence. His amended plan sought to reduce the amount secured by the mortgage and refinance the property, but Bankruptcy Judge Cecilia G. Morris rejected the plan on the ground that the property was Morillo’s primary residence. That bankruptcy proceeding was dismissed on September 12, 2018.
Morillo filed a second Chapter 13 petition on January 23, 2019. The opinion states that he had purportedly vacated the property by then and did not list it as his primary residence. His plan sought to divide Wells Fargo’s foreclosure judgment. On January 30, 2019, Morillo moved under 11 U.S.C. § 362(c)(3)(B) to extend the automatic stay beyond its initial 30-day period. After motion practice and three hearings, Judge Lane denied the motion.
Legal Standard
The district court had authority to review final bankruptcy-court orders and applied different standards to different issues: factual findings were reviewed for clear error, while legal conclusions were reviewed without deference. A factual finding is clearly erroneous only when the reviewing court is firmly convinced that a mistake was made.
Under 11 U.S.C. § 362(c)(3), when a debtor had a bankruptcy case pending during the preceding year that was dismissed, the automatic stay generally ends 30 days after the later case is filed. A court may extend the stay as to some or all creditors only if the party seeking the extension shows that the later bankruptcy filing was made in good faith as to the creditors who would be stayed. The statute creates a presumption that the later filing was not made in good faith, which the debtor may rebut with clear and convincing evidence.
Courts assess good faith under the totality of the circumstances. The factors discussed in the opinion include whether the debtor misrepresented facts in the plan, the debtor’s history of bankruptcy filings and dismissals, whether the filing was intended to defeat state-court litigation, and whether the debtor engaged in especially serious misconduct.
Analysis
The district court held that Morillo failed to establish by clear and convincing evidence that his second bankruptcy filing was made in good faith as to Wells Fargo. Morillo relied on his attendance at required hearings, payments, submission of documents, filing of schedules, and claimed change in circumstances.
The court explained that those points did not resolve the broader circumstances. It relied on the issues surrounding Morillo’s acquisition of the property, questions about possible collusion, Morillo’s apparent effort to avoid Judge Morris’s ruling in the first bankruptcy case, and the disputed ownership history. Judge Lane had also found no evidence of arm’s-length dealings and concluded that the filing did not satisfy the requirement for extending the stay.
Judge Halpern concluded that Judge Lane’s factual findings were supported by substantial evidence and were not clearly erroneous. The district court therefore affirmed the bankruptcy court’s order denying Morillo’s motion to extend the automatic stay.
Disposition
The Bankruptcy Court’s order was AFFIRMED. The clerk was directed to close the district-court case.
Read the full 7-page opinion on CourtListener, the free public archive maintained by the Free Law Project.