Kimberly Lehnert, termination of the Stay for Successive Filers: Interpreting § 362(c)(3)

• Publication year: 2011

TERMINATION OF THE STAY FOR SUCCESSIVE FILERS: INTERPRETING § 362(C)(3)

INTRODUCTION

In bankruptcy, the automatic stay thwarts the attempts of eager creditors to collect their debts, offering debtors in bankruptcy much-needed breathing space and providing for the most equitable distribution of estate property. It is no surprise that debtors remain eager to take advantage of the stay’s vast protection, and for some time, repeated filings merely to access the stay were a

major problem in this country.1 Congress responded by enacting

§ 362(c)(3)(A) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”).2 Section 362(c)(3)(A) mandates that the automatic stay terminate, “with respect to the debtor,” thirty days after the petition is filed if the debtor has had a prior case dismissed within one year of filing.3

A split of authority currently exists regarding the proper interpretation of this provision of the Bankruptcy Code.4 The majority of courts hold that when a debtor has had a prior case dismissed within one year of filing, the automatic stay terminates thirty days after the second petition is filed as to the debtor and the debtor’s property only.5 The stay continues to protect the property of the estate.6 Alternatively, the minority of courts hold that under such circumstances, the stay terminates in its entirety.7 Underlying this debate is an often unrecognized discrepancy regarding the proper method by which the changes that BAPCPA made are analyzed. Though principles of statutory interpretation are generally not the express focus of the courts’ consideration of

§ 362(c)(3)(A), the divergent methods of interpretation adopted by the courts on either side of the debate explain their disparate outcomes.

1 See Laura B. Bartell, Staying the Serial Filer—Interpreting the New Exploding Stay Provisions of

§ 362(c)(3) of the Bankruptcy Code, 82 AM. BANKR. L.J. 201, 202 (2008).

2 In re Daniel, 404 B.R. 318, 329 (Bankr. N.D. Ill. 2009).

3 11 U.S.C. § 362(c)(3)(A) (2006).

4 See, e.g., Reswick v. Reswick (In re Reswick), 446 B.R. 362, 365–66 (B.A.P. 9th Cir. 2011); Holcomb

v. Hardeman (In re Holcomb), 380 B.R. 813, 816 (B.A.P. 10th Cir. 2008); Jumpp v. Chase Home Fin., LLC (In re Jumpp), 356 B.R. 789, 796–97 (B.A.P. 1st Cir. 2006); In re Jones, 339 B.R. 360, 363–65 (Bankr.

E.D.N.C. 2006).

5 See, e.g., Holcomb, 380 B.R. at 816; Jumpp, 356 B.R. at 796–97; Jones, 339 B.R. at 365.

6 See, e.g., Holcomb, 380 B.R. at 815–16; Jumpp, 356 B.R. at 796–97; Jones, 339 B.R. at 365.

1. Reswick, 446 B.R. at 366.

   The resulting split of authority stems largely from the lack of a clearly articulated Supreme Court–endorsed framework of statutory interpretation. Rather than providing lower courts with clear direction of the steps to be taken when analyzing congressional text, the Supreme Court has handed down

   various rules or “canons” of statutory construction.8 These rules stem from the

   specific factual premise of the particular case and may often be vague as to their intended application to a new set of facts. When applied differently, they may advise entirely different courses of action. Given the volume and range of available rules, courts are able to pick and choose those that most support their position on an issue which inevitably leads to a loss of predictability regarding the § 362(c)(3)(A) analysis a court will conduct.

   
   

   The Honorable Thomas F. Waldron, a former United States Bankruptcy Judge for the Southern District of Ohio, addressed the difficulty of interpreting BAPCPA in his article Principled Principles of Statutory Interpretation: A Judicial Perspective After Two Years of BAPCPA.9 Judge Waldron discussed

   the need to consider “an entire range of statuory principles” when interpreting BAPCPA and proposed a coherent framework of analysis. 10

   
   

   This Comment argues that the Supreme Court should adopt Judge Waldron’s fully articulated framework of statutory interpretation when interpreting BAPCPA. An analysis of the split of authority over § 362(c)(3)(A) demonstrates that the outcome each court ultimately reaches is dictated in large part by the rules of interpretation it employs. The current “system” of statutory interpretation, consisting of numerous conflicting Supreme Court rules, produces decisions that are inconsistent and unpredictable. Judge Waldron’s approach to statutory interpretation produces a complete framework through which BAPCPA may be analyzed. Applying Judge Waldron’s approach to the split of authority over § 362(c)(3)(A) reveals that the better interpretation of

   § 362(c)(3)(A) is that of the majority.

   
   

   Part I of this Comment provides pertinent background information regarding the automatic stay, the development of the bankruptcy courts’ equitable powers which enable them to enforce the stay, and the evolution of

   § 362(c) of the Bankruptcy Code. Part II of this Comment discusses precedent

   
   

2. See Thomas F. Waldron & Neil M. Berman, Principled Principles of Statutory Interpretation: A Judicial Perspective After Two Years of BAPCPA, 81 AM. BANKR. L.J. 195, 209–10, 212 (2007) (“The toolbox containing established canons of statutory interpretation holds an array of tools, many appearing capable of completing a given task. The difficult decision is determining which is best suited to yield the correct result.”).

3. Id.

4. See id. at 228.

   regarding statutory interpretation and the absence of a well-articulated framework of statutory interpretation suited for analyzing BAPCPA. Judge Waldron’s proposed approach to statutory interpretation is then introduced, followed by an argument for its adoption. Part III discusses the split of authority regarding § 362(c)(3)(A) and the courts’ disparate approaches to statutory interpretation. Part III then offers a critique of each analysis, revealing the logical holes left by the courts. Part IV applies Judge Waldron’s fully-articulated framework of statutory interpretation to § 362(c)(3)(A), demonstrating that the majority has produced the better interpretation.

   
   

   1. BACKGROUND OF 11 U.S.C. § 362(C)

      
      

      An understanding of the basics of § 362 of the Bankruptcy Code is crucial to understanding the current interpretive debate surrounding § 362(c)(3)(A). This Part describes the automatic stay and the protection it affords a debtor under § 362, the bankruptcy court’s role as a court of equity, and the purpose behind the enactment of § 362(c).

      
      

      1. The Automatic Stay

         
         

         The filing of a bankruptcy petition creates an estate consisting of “all legal or equitable interests of the debtor in property as of the commencement of the case.”11 Once a voluntary, involuntary, or joint bankruptcy petition is filed,

         § 362 of the Bankruptcy Code imposes an immediate stay of creditor action.12 This automatic stay prohibits initiating or continuing an action against the debtor, enforcing any judgment against the debtor, taking any action to gain

         possession of estate property, or taking any action “to create, perfect, or enforce” any lien securing a prepetition claim.13

         
         

         Likened to a shield by some courts,14 the automatic stay was enacted as “one of the fundamental debtor protections provided by the bankruptcy laws.”15 The stay prevents all creditor collection, harassment, and foreclosure

         
         

         11 11 U.S.C. § 541(a)(1) (2006).

         12 Id. § 362(a).

         13 Id. § 362(a).

         14 See, e.g., McMahon ex rel. Winters v. George Mason Bank, 94 F.3d 130, 136 (4th Cir. 1996) (“Section 362 is a shield, not a sword.”); In re Cinnabar 2000 Haircutters, Inc., 20 B.R. 575, 577 (S.D.N.Y. 1982) (“So too, the bankruptcy laws should not be a haven for contumacious conduct . . . behind the shield of the

         automatic stay.”)

         15 H.R. REP. NO. 95-595, at 340 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6296–97; S. REP. NO. 95-

         989, at 54–55 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5840–41 (“The automatic stay is one of the

         action, providing the debtor with valuable breathing space to attempt to emerge from insolvency.16 The House Report accompanying the Bankruptcy Reform Act of 1978 explained:

         
         

         The stay is the first part of bankruptcy relief, for it gives the debtor a respite from the forces that led him to bankruptcy. Frequently, a consumer debtor is severely harassed by his creditors when he falls behind in payments on loans. The harassment takes the form of abusive phone calls at all hours, including at work, threats of court action, attacks on the debtor’s reputation, and so on. The automatic stay at the commencement of the case takes the pressure off the

         debtor.17

         
         

         In addition to the protections afforded the debtor, the stay benefits the creditors by ensuring an orderly and equitable distribution of any property of the estate.18 Absent the stay, creditors would have every incentive to act as quickly and aggressively as possible to collect on their debts.19 Those to collect first might recover their debts in full, but this would be to the severe detriment of the remaining creditors.20 The stay attempts to ensure that whatever the debtor has available to give to his creditors is divided equitably amongst them.21 The stay also acts to preserve the estate property and ensure maximum distribution for the creditors.22

         
         

         Bankruptcy law affords two remedies when a creditor acts in violation of the automatic stay. First, the courts provide for a civil contempt action by treating the automatic stay as a court order.23 Courts impose contempt sanctions for a violation of the stay upon finding from “clear and convincing

         
         

         fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.”).

         16 H.R. REP. NO. 95-595, at 340, 1978 U.S.C.C.A.N. at 6296–97; S. REP. NO. 95-989, at 54–55, 1978

         U.S.C.C.A.N. at 5840–41.

         17 H.R. REP. NO. 95-595, at 125–26, 1978 U.S.C.C.A.N. at 6086–87 (footnote omitted).

         18 Id. at 340, 1978 U.S.C.C.A.N. at...