You have a boarder in your barn who owes you a ton of money. You're fed up with their excuses and bad checks, and you decide it's time to take action. Just as you're starting the process of foreclosing upon your agister's lien (i.e., taking the necessary legal steps to sell the horse), the boarder triumphantly announces to you that they have filed for bankruptcy. As a result, the boarder claims you "can't touch my horse now" and that furthermore, they don't have to pay you. Whaaaaat?!! Could this be true?
This exact scenario has happened to a handful of Equine Legal Solutions' boarding stable clients. Federal bankruptcy law is designed to protect debtors from collections actions, divide the debtor's assets among its creditors, and give debtors a fresh start of sorts. When a debtor files for bankruptcy, there is an immediate and automatic court order forbidding creditors to take any further collections actions against the debtor. What that means is that the creditors now have to deal exclusively with the bankruptcy court rather than the debtor.
If a bankrupt boarder owes a boarding stable money, the boarding stable is considered a creditor in the boarder's bankruptcy. Practically, that means that as of the date the debtor files for bankruptcy, the boarding stable can't send the debtor any more bills for past due amounts or pursue any more legal claims against the debtor. If the boarding stable has filed a lawsuit against the boarder, they have to dismiss the suit (even if it's in small claims). In particular, the boarding stable can't lawfully sell or give away the debtor's horses. Meanwhile, the boarding stable is still legally obligated to feed the boarder's horses, lest they be accused of animal cruelty. Seriously? Yes.
Assuming that the boarding stable had a valid lien on the horse for the past due board, that lien will generally continue for as long as the stable maintains possession of the horse. But, the boarding stable will need to take certain legal steps in order to be able to do anything with that lien. First, as soon as possible, the boarding stable will need to file a claim in the bankruptcy. To do that, the boarding stable will need the assistance of a bankruptcy attorney. Next, the boarding stable will need to file a motion with the bankruptcy court and obtain the court's permission to sell the horse. This will also require the assistance of bankruptcy counsel.
Most of the time, however, the cost of hiring a bankruptcy attorney exceeds what the bankrupt boarder's horse is worth. It also usually exceeds the amount of board the bankrupt debtor owes the boarding stable. So what can the boarding stable do? Its best bet is to get the debtor to take possession of the horse. This will likely extinguish the boarding stable's lien on the horse, but a lien that's too expensive to enforce is practically worthless anyway. On the other hand, if the debtor takes the horse, the boarding stable gets the horse off of its feed bill. Considering that the debtor's bankruptcy may take months or even years to complete, this benefit is not insubstantial.
Bottom line, when a boarder files for bankruptcy, it's a no-win situation for the boarding stable. Unfair? You bet it is!