Dicing it Up: Does a Sliver of the Automatic Stay Remain for Repeat Debtors?

Author:Robbins, Dana L.
Position:Business Law
 
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The automatic stay, which gives debtors a breathing spell from creditors, is one of the most "fundamental debtor protections" in bankruptcy. (1) Offering broad protection for debtors, the automatic stay ordinarily springs into effect upon the filing of a bankruptcy petition. Because of perceived abuses of the bankruptcy process, however, Congress altered the automatic stay for repeat bankruptcy filers when it enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Now, for individual debtors who had a previous case pending within the preceding year, the automatic stay goes into effect for only 30 days. (2) On the (30)th day, if the debtor or a party in interest does not move to extend the stay, the stay shall "terminate with respect to the debtor." (3)

This phrase--"with respect to the debtor"--has caused a split among courts as to how it limits the termination of the automatic stay for a repeat bankruptcy filer under Bankruptcy Code [section]362(c)(3)(A). Some courts view that language as terminating the stay as to the debtor and property of the debtor--but not as to property of the estate. (4) As one bankruptcy judge refers to it, a "sliver of the stay" remains to protect property of the bankruptcy estate. (5) Other courts hold that the stay is terminated in its entirety, including as to property of the estate. (6) Although the First Circuit has recently rejected the "majority" view and held that no "sliver of the stay" remains, the 11th Circuit has not yet addressed the issue. And bankruptcy courts within the 11th Circuit remain divided. This uncertainty over what, if any, automatic stay remains after termination has vast implications for violations of the automatic stay under [section]362(k)(1). (7)

The Automatic Stay

In order to accomplish the orderly and even administration of a debtor's estate, one of the central goals of bankruptcy, "[creditors' collection efforts must be stopped quickly." (8) Stopping collection efforts gives a debtor a breathing spell from creditors, allowing the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. (9) That breathing spell is accomplished by the automatic stay, which is set forth in Bankruptcy Code [section]362.

The automatic stay under Bankruptcy Code [section]362 provides for a broad stay that freezes all attempts to enforce or collect a debt against the debtor, property of the debtor, or property of the estate. More specifically, the automatic stay stays the commencement or continuation of all proceedings to recover a pre-petition claim against the debtor. Section 362 also operates to stay "the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case," (10) as well as any acts "to obtain possession of property of the estate" (11) or "to create, perfect, or enforce any lien against property of the estate," (12) among others. The protections of the automatic stay continue as to property of the estate until the property is no longer property of the estate; as to all other actions, the stay continues until earliest of the time the case is closed or dismissed or, in an individual case, until a discharge is granted or denied. (13)

By its terms, the automatic stay ordinarily springs into effect upon the filing of a bankruptcy petition under [section]362(a). But there are exceptions for "serial filers"--debtors who have had one or more cases pending during the preceding year. If, at the time a bankruptcy case is filed, the debtor had two or more cases pending during the previous year, then no automatic stay goes into effect. If, at the time a case is filed, an individual debtor had one case pending during the previous year, then the automatic stay is imposed only for 30 days.

A debtor may request to extend the stay beyond the 30-day period, and a bankruptcy court may grant such a request only if the court finds that the current case was filed in good faith. (14) In some cases, the later filing is presumed not to have been filed in good faith, although that presumption may be rebutted by clear and convincing evidence. (15) A motion to extend the stay must be filed and completed within 30 days of the petition date. (16) If no motion to extend the stay is filed, the stay terminates under Bankruptcy Code [section]362(c)(3)(A).

The language of [section]362(c)(3)(A) is where the controversy lies. Section 362(c)(3)(A) provides that when a debtor...

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