IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

Sebastian Palladino, 

 Appellant, 

) 

) 

) 

) 

) 

) 

v. ) 

)

) 

No. 20-cv-2627 

HSBC Bank USA, N.A., 

Appellee. 

)

)

)

) 

Memorandum Opinion and Order 

 Debtor Sebastian Palladino appeals from a judgment entered 

against him in the Bankruptcy Court for the Northern District of 

Illinois, which denied Mr. Palladino’s motion to extend the 

automatic stay as to appellee HSBC Bank USA, N.A. (“HSBC”) under 

11 U.S.C. § 362(c)(3)(B) and granted HSBC’s motion for in rem 

relief from the stay under 11 U.S.C. § 362(d)(4). For the reasons 

that follow, the decision of the Bankruptcy Court is affirmed. 

I. 

 The instant bankruptcy proceeding relates to a property 

located at 917 Heathrow Lane in Naperville, Illinois (the 

“property”). In 2006, Mr. Palladino’s then-wife, Marcella 

Palladino, signed a thirty-year promissory note for $313,500 

secured by a mortgage on the property. ECF No. 15-1 at APP0103. 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 1 of 12 PageID #:2943
2 

Although he did not sign the note, Mr. Palladino is a co-mortgagor 

of the property, and currently resides there. Id. at APP1347–48. 

The Palladinos have made no payments on the property since 2007. 

Id. The property has been the subject of several legal actions, 

and a brief description of that legal history is warranted here. 

 In 2008, HSBC filed a foreclosure action on the property in 

Illinois state court. Id. at APP0868. The trial court awarded 

summary judgment to HSBC, but on appeal, Mr. Palladino challenged 

HSBC’s standing, and the appeals court reversed, finding that there 

were genuine issues of material fact with respect to the assignment 

of the mortgage and note to HSBC and the authenticity of the note. 

Id. at APP0038–48. On remand, the trial court denied Mr. 

Palladino’s renewed motion to dismiss for lack of standing. Id.

at APP0469; APP0433. HSBC moved for summary judgment again, and 

briefing was completed in late February 2018. Id. at APP0510. 

 On March 15, 2018, before the summary judgment motion could 

be ruled upon, Mr. Palladino filed his first Chapter 13 bankruptcy 

petition. Id. at APP0191. The action of filing a bankruptcy 

petition generally automatically stays judicial actions against 

the debtor, 11 U.S.C. § 362(a), so the petition had the effect of 

staying the foreclosure action. The first bankruptcy action was 

quickly dismissed, however, because Mr. Palladino failed to file 

a Chapter 13 Plan and other required documentation. Id. at 

APP0194. Undeterred, Mr. Palladino filed a second Chapter 13 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 2 of 12 PageID #:2944
3 

petition on April 18, 2018, but that action was also dismissed at 

the Trustee’s recommendation after the Trustee argued that Mr. 

Palladino was proceeding in bad faith. Id. at APP0203, APP0200. 

 On November 6, 2018, Mr. Palladino filed a third Chapter 13 

bankruptcy petition. Id. at APP0329. This time, substantive 

proceedings were held. Id. On January 22, 2019, the Bankruptcy 

Court granted relief from the automatic stay to HSBC and allowed 

it to proceed with its foreclosure action in Illinois court. Id.

at APP0690. Ultimately, on May 24, 2019, the Bankruptcy Court 

denied confirmation of the Chapter 13 plan and dismissed the case 

with a 180-day bar to refiling, citing “bad faith.” Id. at 

APP1355-56; APP0703. 

 With the automatic stay lifted, on February 8, 2019, the 

Illinois state court granted summary judgment on behalf of HSBC 

and entered a judgment of foreclosure. Id. at APP0979–80. On 

February 26, 2020, however, on the eve of the foreclosure sale, 

Mr. Palladino filed the instant bankruptcy petition, his fourth 

concerning the property. Id. at APP0012. 

 Mr. Palladino now appeals from an April 17, 2020 decision in 

the instant (fourth) bankruptcy case in which the Bankruptcy Court 

denied Mr. Palladino’s motion to extend the automatic stay as to 

HSBC under 11 U.S.C. § 362(c)(3)(B) and granted HSBC’s motion for 

in rem relief from the stay under 11 U.S.C. § 362(d)(4). Id. at 

APP0006. 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 3 of 12 PageID #:2945
4 

 Subsequent to filing the instant appeal, Mr. Palladino 

amended his schedules and submitted a revised plan removing HSBC 

as a creditor. See ECF No. 11 at 6; ECF No. 15 at 29. The amended 

plan was confirmed on June 12, 2020. Id. 

II. 

 I review “a bankruptcy court’s factual findings for clear 

error and its legal conclusions de novo.” In re Miss. Valley 

Livestock, Inc., 745 F.3d 299, 302 (7th Cir. 2014). A factual 

finding is not clearly erroneous if it is “‘plausible in light of 

the record viewed in its entirety,’ even if [the reviewing court] 

would have ‘“weighed the evidence differently” and reached the 

opposite conclusion.’” United Air Lines, Inc. v. Int’l Ass’n of 

Machinist & Aerospace Workers, 243 F.3d 349, 361 (7th Cir. 2001) 

(citing Air Line Pilots Ass’n Int’l v. United Air Lines, Inc., 802 

F.2d 886, 891 n.2 (7th Cir. 1986)). Moreover, a “bankruptcy 

court’s grant of relief from the automatic stay is reviewed for an 

abuse of discretion.” Colon v. Option One Mortg. Corp., 319 F.3d 

912, 916 (7th Cir. 2003); In re Williams, 144 F.3d 544, 546 (7th 

Cir. 1998) (“[T]he bankruptcy court has discretion whether and to 

what extent it will grant relief from the stay, so our review is 

limited to whether the court abused that discretion.”). 

III. 

 As a threshold matter, Mr. Palladino argues that HSBC lacked 

standing to move for relief from the automatic stay in the 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 4 of 12 PageID #:2946
5 

bankruptcy action, making substantially similar arguments to those 

he advanced in the foreclosure action regarding HSBC’s standing. 

Standing to move for relief from an automatic stay in bankruptcy 

court, however, is different than standing to foreclose. “Hearings 

to determine whether the stay should be lifted are meant to be 

summary in character.” In re Vitreous Steel Prods. Co., 911 F.2d 

1223, 1232 (7th Cir. 1990). “A decision to modify they stay is 

‘only a determination that the creditor’s claim is sufficiently 

plausible to allow its prosecution elsewhere.’” In re Spencer, 

531 B.R. 208, 212 (Bankr. W.D. Wis. 2015), aff’d sub nom. Spencer 

v. Fed. Home Loan Mortg. Corp., 246 F. Supp. 3d 1241 (W.D. Wis. 

2017) (citation omitted). Thus, to establish standing to move for 

relief from the stay in the Seventh Circuit, a party in interest 

need only demonstrate a “colorable claim” to the property. In re 

Vitreous Steel, 911 F.2d at 1232, 1234; In re Spencer, 531 B.R. at 

212.1 

1 Mr. Palladino cites to Second Circuit authority for the 

proposition that HSBC does not have standing as a “creditor” 

because it has not proven the validity of its lien in the instant 

bankruptcy proceeding. See, e.g., In re Idicula, 484 B.R. 284, 

287 (Bankr. S.D.N.Y. 2013). The Second Circuit, however, has 

adopted an exceedingly “narrow view” of standing, which “has been 

criticized as resulting in ‘the anomalous situation in which a 

party is subject to the automatic stay but is unable to seek relief 

even when damage may result from its continuance.’” In re 

Sweports, Ltd., 476 B.R. 540, 543 (Bankr. N.D. Ill. 2012) (citing 

3 Collier on Bankruptcy ¶ 362.07[2]). The Seventh Circuit’s 

“better practice,” binding on this court, is to require only a 

“colorable claim” to a lien on the property. Id.; see In re 

Vitreous Steel, 911 F.2d at 1232, 1234. 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 5 of 12 PageID #:2947
6 

 Here, the district court did not err in concluding that HSBC 

had standing to move for relief from the stay. HSBC has obtained 

a judgment of foreclosure in the state court, and such judgments 

have been held sufficient to establish a “colorable claim” to the 

property. In re Spencer, 531 B.R. at 212–13; see also In re 

Boydstun, No. WO-19-020, 2020 WL 241492, at *5 (B.A.P. 10th Cir. 

Jan. 16, 2020) (“[Creditor’s] documents (the Note, Mortgage, and 

assignments), taken with the final state court Foreclosure 

Judgment, demonstrated that [creditor] met the low threshold of 

proving it was a party in interest with a colorable claim for stay 

relief.”). 

 Mr. Palladino also argues that HSBC was barred from moving 

for relief from the stay because it did not file a proof of claim 

in the fourth bankruptcy. See Fed. R. Bankr. P. 3002(a). But 

Section 362 requires only that a movant be a “party in interest”; 

nowhere does it specify that the party must also have filed a proof 

of claim. See 11 U.S.C. § 362(d). Accordingly, courts that have 

considered the issue have not required that a creditor file a proof 

of claim to establish standing to move for relief from an automatic 

stay. See In re D/C Distribution, LLC, 617 B.R. 600, 608-09 

(Bankr. N.D. Ill. 2020); see also In re Quinteros, No. 19-00195, 

2019 WL 5874609, at *11–14 (Bankr. D.D.C. Nov. 8, 2019) (“Rule 

3002 does not say anything about whether a secured creditor is 

barred from seeking relief from the automatic stay if it fails to 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 6 of 12 PageID #:2948
7 

file a proof of claim.”). For the foregoing reasons, the 

Bankruptcy Court did not err in concluding that HSBC had standing. 

IV. 

 I turn to the merits—first, Mr. Palladino’s challenge to the 

Bankruptcy Court’s order denying his request to extend the 

automatic stay. Generally, as noted above, the filing of a 

bankruptcy petition automatically stays any judicial action 

against the debtor, enforcement of any judgment obtained against 

the debtor, or the enforcement of any lien against the debtor’s 

property. 11 U.S.C. § 362(a). However if, as here, the debtor 

was part of another bankruptcy case that “was pending within the 

preceding 1-year period but was dismissed,” the stay automatically 

terminates thirty days after filing. 11 U.S.C. § 362(c)(3)(A). 

The debtor may seek an extension of the stay if he “demonstrates 

that the filing of the later case is in good faith as to the 

creditors to be stayed.” 11 U.S.C. § 362(c)(3)(B). The later 

case is presumptively not filed in good faith (1) “as to all 

creditors, if . . . there has not been a substantial change in the 

financial or personal affairs of the debtor since the dismissal of 

the . . . previous case,” 11 U.S.C. § 362(c)(3)(C)(i)(III), or (2) 

“as to any creditor that commenced an action [for relief from the 

stay] in a previous case in which the individual was a debtor if, 

as of the date of dismissal of such case, that action was still 

pending or had been resolved by terminating, conditioning, or 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 7 of 12 PageID #:2949
8 

limiting the stay as to actions of such creditor,” 11 U.S.C. 

§ 362(c)(3)(C)(ii). 

 Here, the Bankruptcy Court denied Mr. Palladino’s motion to 

extend the thirty-day automatic stay as to HSBC. It correctly 

determined that the petition was presumptively filed in bad faith 

as to HSBC because HSBC had opposed extension of the automatic 

stay in the third bankruptcy case, and that opposition was resolved 

by terminating the stay as to HSBC. See 11 U.S.C. 

§ 362(c)(3)(C)(ii). Further, after a detailed discussion, the 

court determined that a second bad faith presumption applied as to 

all creditors because Mr. Palladino had not established a 

substantial change in circumstances making his case more likely to 

succeed. See 11 U.S.C. § 362(c)(3)(C)(i)(III). Given that Mr. 

Palladino was unable to overcome the statutory presumptions of bad 

faith as to HSBC, and incorporating its findings in the third 

bankruptcy case regarding Mr. Palladino’s history of bad faith, 

the Bankruptcy Court declined to extend the automatic stay as to 

HSBC. 

 I cannot conclude that the Bankruptcy Court abused its 

discretion in declining to extend the automatic stay. Because 

there was a presumption of bad faith, Mr. Palladino bore the burden 

of establishing his own good faith by “clear and convincing 

evidence.” 11 U.S.C. § 362(c)(3)(C); see In re Rice-Harris, No. 

17 C 6489, 2018 WL 1762441, at *2 (N.D. Ill. Apr. 12, 2018). 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 8 of 12 PageID #:2950
9 

Particularly in light of Mr. Palladino’s refusal to make any 

payments on his property, as well as his history of initiating 

bankruptcy proceedings on the eve of adverse orders in the 

foreclosure action, the Bankruptcy Court was not unjustified in 

concluding that the instant bankruptcy proceeding was initiated in 

bad faith. 

 Mr. Palladino argues that the Bankruptcy Court’s ultimate 

confirmation of his Chapter 13 plan conflicts with its finding of 

bad faith in connection with the automatic stay. Particularly, 

Section 1325(a) provides that a bankruptcy court may only confirm 

a plan if, among other things, “the action of the debtor in filing 

the petition was in good faith.” 11 U.S.C. § 1325(a)(7). By 

confirming the Chapter 13 plan after removing HSBC as a creditor, 

Mr. Palladino contends, the Bankruptcy Court “legally reversed its 

finding [of bad faith] in failing to extend the stay.” ECF No. 11 

at 15. 

 But, although similar, the good-faith standards set forth in 

Sections 1325(a)(7) (plan confirmation) and 362(c)(3)(B) (motion 

to extend automatic stay) are not identical. Looking both to the 

specific language and the overall structure of the bankruptcy code, 

courts have concluded that the good-faith analysis under Section 

1325(a)(7) differs from that under Section 362(c)(3)(B) in that it 

focuses primarily on the debtor, rather than the individual 

creditors. See In re Tomasini, 339 B.R. 773, 775-83 (Bankr. D. 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 9 of 12 PageID #:2951
10 

Utah 2006); see also In re Ford, 522 B.R. 829, 838 (Bankr. D.S.C. 

2014). Moreover, because a bad-faith presumption attached to Mr. 

Palladino under Section 362(c)(3)(C), Mr. Palladino was required 

to establish his good faith “by clear and convincing evidence.” 

11 U.S.C. § 362(c)(3)(C). By contrast, in order to have his plan 

confirmed, Mr. Palladino needed to establish his good faith only 

by a preponderance of the evidence. See In re Colon, 561 B.R. 

682, 686 (Bankr. N.D. Ill. 2016). Accordingly, it is not the case 

that denial of a motion to extend the automatic stay under Section 

362(c)(3)(B) necessarily precludes a subsequent confirmation of 

the debtor’s plan under Section 1325(a). 

 For the foregoing reasons, I affirm the Bankruptcy Court’s 

decision to suspend the automatic stay as to HSBC. 

V. 

 Mr. Palladino also challenges the Bankruptcy Court’s grant of 

in rem relief from the automatic stay under Section 362(d)(4). 

Section 362(d)(4) provides: 

On request of a party in interest and after notice and 

a hearing, the court shall grant relief from the stay . 

. . with respect to a stay of an act against real 

property . . . if the court finds that the filing of the 

petition was part of a scheme to delay, hinder, or 

defraud creditors that involved . . . multiple 

bankruptcy filings affecting such real property. 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 10 of 12 PageID #:2952
11 

11 U.S.C. § 362(d)(4)(B). If such relief is granted, and it is 

recorded in compliance with applicable state law, the order will 

be “binding in any other case under [Title 11] purporting to affect 

such real property filed not later than 2 years after the date of 

the entry of such order.” Id. § 362(d)(4). 

 Section 362(d)(4)(B) “requires that two elements be 

established: (a) that the debtor engaged in a scheme to delay, 

hinder or defraud creditors, and (b) that the scheme involved . . 

. multiple bankruptcy filings.” In re Briggs, No. 12-bk-14853, 

2012 WL 3780542, at *4 (Bankr. N.D. Ill. Aug. 31, 2012). As there 

were plainly multiple filings here, the principal question 

presented to the Bankruptcy Court was whether Mr. Palladino’s 

behavior constituted a “scheme” to delay, hinder, or defraud 

creditors. For purposes of this section, a “scheme” is “an 

intentional artful plot or plan.” Id. at *5. Pointing to the 

prior findings of bad faith and the lack of any meaningful change 

of Mr. Palladino’s circumstances, the Bankruptcy Court concluded 

that Mr. Palladino “[c]learly” filed all four bankruptcy petitions 

“in order to stall [HSBC]’s numerous attempts to foreclose on the 

Property,” and granted HSBC in rem relief. ECF No. 15-1 at 

APP0010. Given Mr. Palladino’s litigation history, I decline to 

hold that decision was clear error. 

 On appeal, Mr. Palladino asserts that because foreclosure 

actions are considered quasi in rem under Illinois law, the 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 11 of 12 PageID #:2953
12 

Bankruptcy Court was not “empowered” to “grant[] the in rem order.” 

ECF No. 11 at 16-18. The nature of a foreclosure action in 

Illinois, however, is beside the point. Section 362(d)(4) of the 

Bankruptcy Code “provides bankruptcy judges with statutory 

authority to grant in rem relief.” In re Wilke, 429 B.R. 916, 922 

(Bankr. N.D. Ill. 2010). The Bankruptcy Court was thus “empowered” 

to exercise that authority to grant HSBC’s motion. 

 For the foregoing reasons, the Bankruptcy Court’s April 17, 

2020 order is affirmed. 

 ENTER ORDER: 

 ________________________ 

 Elaine E. Bucklo 

 United States District Judge 

Dated: November 24, 2020 

Case: 1:20-cv-02627 Document #: 21 Filed: 11/24/20 Page 12 of 12 PageID #:2954