The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), as the name implies, included several amendments to the Bankruptcy Code that were intended to curb alleged “abuses” of the Code and Bankruptcy system. One of the amendments was limiting or eliminating the protections of the automatic stay of §362(a) for repeat filings within a one year period. Judge Sacca in the Northern District of Georgia recently addressed the applicability and limitations of §362(c)(3), which limits the stay for the second case filed within a one year period. In re Keeler, Ch. 13 Case No. 16-59261, 2016 WL 6892464 (Bankr. N.D. Ga. Nov. 22, 2016).
Section 362(c)(3) states:
[I]f a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b)—
(A) the stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case;
(B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed…
(emphasis added). Like many of the BAPCPA changes to the Code, this subsection has led to some confusion. In Keeler, Debtors filed their second Chapter 13 case three days after the dismissal of their prior Chapter 13 case, but did not move to extend the stay pursuant to §362(c)(3)(B). After the second filing, and after the 30 day stay expired, the Debtors entered into a residential lease. Debtors subsequently defaulted on the lease and the Landlord filed a Motion for an order confirming that the automatic stay was not in effect so they could proceed with eviction. Debtors argued that the automatic stay still protected them as the lease was property of the estate, even though they did not seek an extension of the stay beyond the initial 30 days.
Judge Sacca discussed the different views of courts on what is, or is not, protected by the stay after the expiration of the stay pursuant to §362(c)(3). Some courts, including Judge Murphy (retired) in the Northern District, have held that the phrase “with respect to the debtor” means that the stay terminates after 30 days with respect to the debtor and non-estate property, but not to property of the estate. See, e.g., In re Rinard, 451 B.R. 12, 19–20 (Bankr. C.D. Cal. 2011); In re Thornton, 07-70002-MHM, 2007 WL 7140155, at *1 (Bankr. N.D. Ga. Aug.
30, 2007); In re Brandon, 349 B.R. 130, 132 (Bankr. M.D.N.C. 2006). Other courts, generally under the theory that “exceptions cannot swallow the rule” and the statute is clear on its face, have held that the stay terminates with respect to the debtor and the estate. See, e.g., In re Reswick, 446 B.R. 362, 368, 372 (B.A.P. 9th Cir. 2011); St. Anne’s Credit Union v. Ackell, 490 B.R. 141, 145 (D. Mass. 2013); In re Whitescorn, No. 13-60159-fra13, 2013 WL 1121393, at *2 (Bankr. D. Or. Mar. 14, 2013); In re Curry, 362 B.R. 394, 400-01 (Bankr. N.D. Ill. 2007).
Judge Sacca did not find the language of the statute as clear as many of cases, and searched for a “sensible result” that was consistent with the statute. He noted that he generally agrees with the latter line of cases, and that a lease or property securing a debt would almost always involve property of the estate; therefore, it would make no practical sense for Congress to say the stay terminates only as to non-estate property. In the case before the Court, the stay could not terminate only with respect to the Debtors and not with respect to the estate property (the possessory interest in the lease), “except perhaps to obtain a monetary judgment against the debtor that could not be enforced outside of bankruptcy.”
The only practical way to proceed against the Debtors here that also affords Movant any relief under the statute is to proceed against the property of the estate. Therefore, under Thornton and similar cases, it seems that their interpretation of the statute renders the statute completely ineffective. Courts are not supposed to interpret a statute in a way to render it ineffective…It also does not seem appropriate to interpret a statute that is intentionally designed to limit the applicability of the automatic stay if the debtor cannot show the case was filed in good faith within the requisite time in a manner so favorable to the debtor that it effectively relieves the debtor from the statutorily imposed burden.
Second, because Congress included § 362(c)(3) in its 2005 Amendments for the purpose of limiting the effect of the stay in repeat filings, it only makes sense if landlords and secured creditors are allowed to proceed against property of the estate securing their claims if the debtor fails to show the new case was filed in good faith…
A contrary interpretation would prevent § 362(c)(3) from having any practical effect at all because an individual debtor not proceeding in good faith under any chapter would still have the protection of the automatic stay as to his or her estate property, such as a house or a car, which is often the purpose of an abusive repeat filing. This would be inconsistent with the obvious purpose of § 362(c)(3).
Based upon this reasoning, Judge Sacca held that the automatic stay was not applicable to the landlord’s efforts to recover possession of the property and liquidating its claim against the Debtors. However, he stopped short of holding that the stay was terminated such that the landlord could take action to collect its claim.
To this Court, the termination of the automatic stay in § 362(c)(3) may have been intended to be more limited than a complete termination based on the language of the statute. Rather than merely saying broadly that the stay in § 362(a) is terminated, § 362(c)(3) provides that it is only the stay with respect to a debt and property that secures a debt or a lease that is terminated. This language may suggest that it is arguably not so broad as to include perfection or recordation of a lien or some other types of debt collection activities.
Here, Judge Sacca based this possible limitation on Congress’ decision to not simply say the stay was terminated, as it did in § 362(c)(4) (for the third case filed within a year), without the additional language (“with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease”). Because the landlord did not seek relief beyond the recovery of the property and liquidation of its claim in state court, Judge Sacca declined to give them a “comfort order” allowing further efforts to collect their claim.
Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented individual and business debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation. For more information, click here.