Case Spotlights Potential Exploitation of the Bankruptcy Process
The United States Bankruptcy Court for the Western District of Kentucky ended Debtor Helen Mitchell’s (“Mitchell” or “Debtor”) abuse of the bankruptcy process by the Court’s recent memorandum-opinion which included a two-year ban on subsequent filings or stays. In D Mitchell, Case No. 19-31949(1)(13), 2021 WL 2546670, at *5 (Bankr. WD Ky. June 21, 2021), Mitchell executed a note and mortgage in 1999 that created a lien on Mitchell’s real estate property located in Louisville, Kentucky (“the Property”). Mitchell subsequently defaulted on the terms of the note and the mortgage. She filed for bankruptcy in 2011, but that case was dismissed due to Mitchell’s failure to appear at the first meeting of creditors.
US Bank filed foreclosure proceedings in 2013 and obtained a foreclosure judgment in 2016. Mitchell again filed for bankruptcy protection in 2016 and 2019, both were denied due to his failure to comply various bankruptcy filing requirements. Meanwhile, in the foreclosure action, the clerk postponed the foreclosure sale eight times between January 2018 and June 2019 in part due to Mitchell’s multiple bankruptcy filings. After Mitchell successfully reinstated his third Chapter 13 bankruptcy, U.S. Bank filed for a stay and dismissed the bankruptcy case due to Mitchell’s abuse of the bankruptcy process.
After reviewing Mitchell’s multiple bankruptcy cases, the Court found that Mitchell’s bankruptcy history included “a classic portrait of delay, abuse, and bad faith leading to abuse of the bankruptcy process.” The Court assumed that the underlying motivation for Mitchell’s filing for bankruptcy protection was to “thwart…US Bank’s efforts to seize the real estate…” and to prevent US Bank “from pursuing actions to recover the funds lent to [Mitchell] that she… failed to repay. The court also pointed out that US Bank owed far more than the value of the property and that Mitchell, despite being ordered to do so, made no good faith monthly payments for the mortgage debt “during the enormous delays here… “
The Court dismissed Mitchell’s Chapter 13 bankruptcy case with prejudice and issued an order prohibiting Mitchell from filing a new bankruptcy petition that would stay US Bank’s foreclosure efforts. The Court also barred Mitchell from filing bankruptcy petitions for 180 days in the Western District of Kentucky. While this was a good result for US Bank, Mitchell was still able to delay foreclosure proceedings for years. Hopefully more bankruptcy courts will follow the Western District’s lead and prevent debtors from abusing the bankruptcy process.