GSB Vol. 11, No. 5, Pg. 18. Changes to the Automatic Stay Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Authorby Michael J. McCormick

Georgia Bar Journal

Volume 11.

GSB Vol. 11, No. 5, Pg. 18.

Changes to the Automatic Stay Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

GSB JournalVolume 11, No. 5February 2006Changes to the Automatic Stay Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005by Michael J. McCormickAs counsel for both debtors and creditors are surely aware, the automatic stay provisions contained in Section 362(a) of the U.S. Bankruptcy Code (herein, the Bankruptcy Code),(fn1) provide eligible debtors, and most notably individual homeowners, with a powerful weapon in stopping a foreclosure sale and other collection efforts. In fact, the automatic stay is probably the most fundamental aspect of our bankruptcy system in that it provides an opportunity for a debtor to obtain relief from the collection efforts of his or her creditors and also serves as the first step toward obtaining a discharge or providing for an orderly liquidation or reorganization.(fn2)

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005(fn3) (the Act) put in place fundamental changes to the Bankruptcy Code, including the adoption of a means test for filing bankruptcy, increased filing requirements, and the imposition of mandatory credit counseling requirements. Some of the most important changes brought about by the Act, however, were the numerous changes to the automatic stay provisions set forth in Section 362 of the Bankruptcy Code. These key changes to the automatic stay, which affect cases filed on or after Oct. 17, 2005,(fn4) concern the following areas: (1) automatic termination of the stay, (2) two-year relief from the stay for creditors seeking to enforce certain liens, (3) termination of the automatic stay with regard to certain personal property, and (4) the addition of several new exceptions to the automatic stay. This article discusses the changes in each of these areas and, in particular, notes those areas in which the practical effect of the Act on the processes and procedures concerning the automatic stay will need to be further fleshed out through legislative and judicial processes.

Automatic Termination of the Stay

The Act effected key changes regarding the circumstances under which the automatic stay terminates. Section 362(e) of the Bankruptcy Code has been amended to add a new paragraph(fn5) that provides for the expiration of the automatic stay 60 days after a creditor's request for relief in cases involving individual debtors, unless a final decision on the request is rendered by the court during the 60-day period, the period is extended by agreement of the parties, or the period is extended for good cause, as determined by the court. Perhaps the most significant changes in the Act, however, concern the termination of the automatic stay in cases in which the debtor has filed for bankruptcy on multiple occasions.

Turning first to the changes directed at individuals with multiple bankruptcy filings, the new Section 362(c)(3) of the Bankruptcy Code provides for termination of the automatic stay 30 days after a debtor files a bankruptcy petition, if a Chapter 7, 11 or 13 petition was pending and dismissed within the preceding year. The court may extend the stay, but only if the case filed last in time by the debtor (referred to herein as the Later-Filed Case) is filed in good faith.(fn6) Any hearing on the issue of continuing the stay must take place within 30 days after the filing of the Later-Filed Case.(fn7)

The following new provisions of the Bankruptcy Code also come into play in situations in which the debtor has had more than one case pending within the previous year:

* Section 362(c)(3)(C) provides that when a debtor has had more than one case pending within the previous year, there is a presumption that the Later-Filed Case has not been filed in good faith. This presumption, however, can be rebutted by "clear and convincing evidence."

* Section 362(c) (4) (A) (i) further provides that if the Later-Filed Case follows two previously dismissed cases within the year, then the stay does not take effect at all and can be imposed only upon the motion of a party-in-interest (e.g., a debtor, trustee or creditor), and then only if the debtor can rebut the presumption of bad faith by clear and convincing evidence. Any request to impose the stay must be made within 30 days after the date on which Later-Filed Case was filed,(fn8) and any order imposing the stay is effective only upon entry.(fn9)

* Section 362(c) (4) (A) (ii) states that upon the request of a partyin-interest, a court is required to promptly enter an order confirming that there is no stay in effect. This procedure would presumably "require the court to verify without the benefit of a hearing that the request for such an order was based upon correct facts."(fn10)

It is important to note that previous bankruptcy cases dismissed pursuant to Section 707(b) of the Bankruptcy Code(fn11) do not count for purposes of determining application of the automatic stay. Therefore, when using electronic court docket monitoring services such as ADS, Banko, or PACER, it is important to know why any previous cases were dismissed.

How is good faith determined?

Per Bankruptcy Code Section 362(c), it is presumed that a case was not filed in good faith in the following circumstances:

(i) as to all creditors,

(I) if more than one previous case under any of chapters 7, 11 and 13 in which the individual was a debtor was pending within the preceding one-year period;

(II) a previous case under any of chapters 7, 11 and 13 in which the individual was a debtor was dismissed within such one-year period, after the debtor failed to -

aa) file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was caused by the negligence of the debtor's attorney);

bb) provide adequate protection as ordered by the court; or

cc) perform the terms of a plan confirmed by the court; or

(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11 or 13 or any other reason to conclude that the later case will be concluded -

aa) if a case under chapter 7, with a discharge; or

bb) if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; and

(ii) as to any creditor that commenced an action under...

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