Bankruptcy hijacking has been a problem in Southern California bankruptcy courts for some time. The trend is starting to show up in the Sacramento Bankruptcy Court too. Here is what you need to know about this concerning phenomenon.
Bankruptcy hijacking can be defined as a third party fraudulently taking advantage of a debtor’s bankruptcy case without the debtors knowledge. Sound confusing? It is! Here is an example that illustrates what has been happening in bankruptcy courts up and down the state.
One of the main protections of filing for bankruptcy is known as the “automatic stay.” The stay acts to protect a person from nearly all collection activity while the debtor’s bankruptcy is sorted out by the court. The automatic stay is so powerful that it can even stop a bank from foreclosing on a house. It is this protection that unscrupulous individuals are taking advantage of — and make no mistake, it is seriously illegal.
Let’s say that Person A is about to have their house foreclosed upon. They hire an unscrupulous person, Scam Artist, to “stop the foreclosure.” What Scam Artist does is pretty clever: he or she fakes a grant deed from Person A to Debtor and back dates it prior to the bankruptcy. Scam Artist then faxes the fake grant deed and a copy of Debtor’s notice of bankruptcy to the foreclosure servicer. The servicer, now thinking that the house is protected by Debtor’s bankruptcy stay, pulls back and stops the foreclosure sale. Up until this point, Debtor has no idea any of this is happening.
The first Debtor hears about the scheme is when Bank comes into the Bankruptcy Court and files a “Motion for Relief from Automatic Stay.” This motion is a request by the Bank to have the Bankruptcy Court lift the automatic stay so that Bank can proceed with the foreclosure. Debtor, the Bankruptcy Trustee, and the Court are all very confused when this motion shows up for one simple reason: the property listed in the Motion isn’t listed on any of Debtor’s bankruptcy paperwork. This is for good reason: the property doesn’t belong to Debtor!
Debtor now has to respond to the Motion, incurring time and expense. Debtor also has to endeavor to convince everyone in the process that they weren’t perpetrating a fraud on the Court by not “listing” the house referred to in the Motion. This is a huge mess for everyone involved.
Presumably, Person A has bought themselves a few extra months in their house. But they also have put themselves at risk of criminal prosecution. For the Bank’s part, their sloppy reliance on a forged grant deed has unnecessarily complicated Debtor’s bankruptcy case. There is plenty of blame to go around.
To find out more about the bankruptcy process in Sacramento, please call my office at (916) 333-2222. I can guide you through the Chapter 7 and Chapter 13 bankruptcy process.