7. Finding itself in great financial difficulty, Fidelity Mortgage Investors fil

Question

7.   Finding itself in great financial difficulty, Fidelity Mortgage Investors filed a voluntary bankruptcy petition in a New York bankruptcy court. When the petition was filed, the automatic suspension went into effect. Ignoring the suspension, Camelia and Farnale, two of FMI’s creditors, filed suit against FMI in a Mississippi federal court. As a result, FMI was forced to pay out enormous sums of money in its own defense on the Mississippi case. FMI then returned to the bankruptcy court in New York and asked that both Camelia and Farnale be held in contempt of court for ignoring the suspension. Should the New York bankruptcy court hold Camelia and Farnale in contempt? Explain. [See: Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47 (2nd Cir.).]

Explanation / Answer

Yes, the New York bankruptcy court should hold Camelia and Farnale in Contempt because they ignored the suspension of the court. Camelia and Farnale were barred by the Bankruptcy rules. They should first secure permission from the bankruptcy judge in New York. They filed case against FMI after two months of the voluntary bankrupt petition.

FMI was charged almost $76000 in the Mississippi district court and it also required the cost of defending. So, Camelia and Farnale should hold contempt.

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