Credit Union (“MSUFCU”) filed a motion for relief from the automatic stay seeking permission to setoff funds in three certificates of deposit, each titled inthe name of chapter 13 debtor and her minor children (the “Children”). Debtor and her co- debtor husband (the “Debtors”), as well as chapter 13 trustee (the “Trustee”), all oppose the Motion.
Before turning to the merits of the Motion, a point made during the hearing bears repeating:
the current contested matter does not take the place of an adversary proceeding under Fed. R. Bankr. P. 7001 to determine the validity, priority, or extent of any interest in property, but instead is a proceeding, expedited as a matter of statute, to determine whether cause exists to grant relief from the automatic stay under 11 U.S.C. § 362, or the “co-debtor stay” under § 1301. See 11 U.S.C. § 362(e)(1) (stay presumptively terminates 30 days after filing motion for relief unless the court acts to continue the stay, after notice and opportunity for hearing).
Returning to the Motion, MSUFCU, as the party seeking relief from the automatic stay,
bears the initial burden of establishing a prima facie case. Bankruptcy courts generally hold that a creditor who establishes a prepetition right to setoff has made a prima facie case for relief from the automatic stay. A debtor, trustee, or other party-in-interest, of course, may rebut the moving party’s prima facie case. In any such dispute, the Bankruptcy Code assigns to the moving party the burden of proof on the question of the debtor’s equity in the property at issue; the motion’s opponent, however, has the burden of proof on all other issues. 11 U.S.C. § 362(g). Because the Bankruptcy Code does not establish setoff rights, when a creditor seeks stay relief before effecting a setoff the court inquires whether the movant has a colorable right of offset under applicable non-bankruptcy law.
Nevertheless, the Bankruptcy Code does protect and even favor setoff rights in a variety of
ways. For example, it treats claims that are subject to a right of setoff as “secured” under § 506(a), and it insulates such rights from most (though not all) of the provisions of Title 11.
See 11 U.S.C. § 553(a) (making prepetition setoff rights subject to §§ 362, 363, and 553, but providing that the Bankruptcy Code does not otherwise affect such rights). Perhaps for this reason, opinions find prima facie cause for stay relief in cases involving bona fide setoff rights.
Here, the record establishes that in 2006 that the Debtor and her two Children (both minors)
opened two accounts at MSUFCU by completing “Lil’ Sweet Pea” membership and account
applications. The accounts eventually took the form of three certificates of deposit (the “CDs”) in the aggregate face amount of $11,000.00, each a time deposit earning modest interest. The account documents describe Debtor and each of the Children as a “joint party” and state that “[j]oint ownership is in accordance with the joint ownership agreement for the regular share account.” MSUFCU included with its Motion an unsigned document entitled “Membership and Account Agreement,” evidently governing the regular share account of all members – the Debtor and her Children alike. Nothing in the Account Documents suggests that the CDs were fiduciary accounts or accounts under the Uniform Transfers to Minors Act, other than the obvious fact of the parent-child relationship between the joint owners. As a joint owner, the Debtor has the right to withdraw the funds in the CDs, giving her considerable control over the property, and likely an interest in it.
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