Most state court proceedings will be automatically stayed as a result of federal bankruptcy proceedings. 11 USC 362(a). Exceptions to an automatic stay can be found at 11 USC 362(b). Relief from a stay can only be requested in the bankruptcy court. 11 USC 362(d).
The purpose of an automatic stay is to preserve the status quo of the estate, protect the debtor from other collection efforts by creating a systematic liquidation proceeding, and ensure that all creditors of equal status are treated the same. Stackpoole v Dep’t of Treasury, 194 Mich App 112, 116 (1992).
Notice of Bankruptcy Proceedings in State Court Action. MCR 2.421 “provides a process for filing notice of a bankruptcy proceeding that affects a state court action.” ADM File No. 2021-50 (staff comment). However, MCR 2.421 “does not abridge, enlarge, or in any way modify existing rights and procedures under federal law, including bankruptcy proceedings under 11 USC 101 et seq.” MCR 2.421(F).
A party “who is a named debtor in a bankruptcy proceeding” must “file a notice of the bankruptcy proceeding in the state court action no later than 3 days after becoming subject to” the bankruptcy proceeding and “serve the notice on all other parties in the state court action as provided in MCR 2.107.” MCR 2.421(B)(1)-(2). “If a party to a state court action learns that another party in such action is a named debtor in a bankruptcy proceeding and notice of the bankruptcy proceeding in [MCR 2.421(B)] has not previously been filed and served by the debtor,” that party may “file a notice of the bankruptcy proceeding in the state court action” and “serve the notice on all other parties in the state court action as provided in MCR 2.107.” MCR 2.421(C)(1)-(2). The notice of bankruptcy proceeding must include “the name(s) of the debtor(s),” “the court name and case number(s) of the bankruptcy proceeding(s),” and “if available, the name, telephone number, physical address, and email address for the debtor’s attorney in the bankruptcy proceeding(s).” MCR 2.421(D)(1)-(3).
After a notice of bankruptcy proceeding is filed, “the court may hold in abeyance any further proceedings and may schedule a status conference to consider the administrative closure of all or a portion of the state court action.” MCR 2.421(E). If “all or a portion of the state court action is administratively closed under [MCR 2.421(E)] or otherwise, it may be reopened if, on the motion of a party or on the court’s own initiative, the court determines that the automatic stay has been lifted, removed, or otherwise no longer impairs adjudication of all or a portion of the state court action.” Id.
B.Servicemembers Civil Relief Act
The Servicemembers Civil Relief Act (SCRA) governs the granting of stays to members of the military who are unable to appear at civil court proceedings. 50 USC 3931–50 USC 3938a; 50 USC Appx 501-596. “[T]he SCRA is always to be liberally construed[.]” Johnson v Johnson, 329 Mich App 110, 119 (2019) (quotation marks and citation omitted).
Where a servicemember is the defendant in a civil action or proceeding and does not make an appearance, a stay may be granted. Upon its own motion or application of counsel, the court must grant a stay for a minimum period of 90 days if it determines that:
“(1) there may be a defense to the action and a defense cannot be presented without the presence of the defendant; or
(2) after due diligence, counsel has been unable to contact the defendant or otherwise determine if a meritorious defense exists.” 50 USC 3931(d); 50 USC Appx 521(d).
Where a servicemember has notice of the civil proceedings, a stay may be granted upon the court’s own motion and must be granted upon application by the servicemember if the application includes:
“(A) A letter or other communication setting forth facts stating the manner in which current military duty requirements materially affect the servicemember’s ability to appear and stating a date when the servicemember will be available to appear.
(B) A letter or other communication from the servicemember’s commanding officer stating that the servicemember’s current military duty prevents appearance and that military leave is not authorized for the servicemember at the time of the letter.” 50 USC 3932(b)(1)-(2); 50 USC Appx 522(b)(1)-(2).
“[A]lthough [50 USC 3932(b)(2)(B)] expressly state[s] that [the letter or communication] must be ‘from’ the servicemember’s commanding officer . . ., nothing in the statutory language precludes the servicemember’s commanding officer from making those statements in a letter authored by the servicemember [that is] adopted by the servicemember’s commanding officer.” Johnson, 329 Mich App at 123-124 (the trial court properly denied a servicemember’s request for a stay where the servicemember “offered no explanation for why or how her duties materially affected her ability to appear for the . . . proceedings,” and “failed to state ‘a date when the servicemember [would] be available to appear’”).
“A service member who is granted a stay of a civil action or proceeding under subsection (b) may apply for an additional stay based on continuing material affect of military duty on the servicemember’s ability to appear.” 50 USC 3932(d)(1); 50 USC Appx 522(d). However, “[u]nlike the stay under [50 USC 3932(b)], an additional stay under [50 USC 3932(d)] is not mandatory[.]” Johnson, 329 Mich App at 121 n 6. “If the court refuses to grant an additional stay of proceedings . . ., the court shall appoint counsel to represent the servicemember in the action or proceeding.” 50 USC 3932(d)(2); 50 USC Appx 522(d)(2).