Relief From Stay and "Comfort" Orders

• Jurisdiction: Maryland

III. RELIEF FROM STAY AND "COMFORT" ORDERS

The automatic stay may be lifted earlier than the end of the case under three circumstances. The first two may apply to repeat bankruptcy filers as a direct result of the 2005 BAPCPA amendments, while the last is through a "motion for relief from stay."

A. Repeat filers after BAPCPA

The automatic stay with respect to repeat filers was limited by BAPCPA amendments found at 11 U.S.C. § 362(c)(3) and (c)(4):

Sections 362(c)(3) and (c)(4) of the Code address the consequences of a debtor filing multiple, unsuccessful cases in a short period of time. Indeed, the consequences may be severe, as a debtor may receive only limited protection under section 362(c)(3), or no protection under section 362(c)(4), from the automatic stay of section 362(a) of the Code.⁸⁰

Each of these sections work slightly differently and have important potential pitfalls so the exact facts and language must be scrutinized closely.

1. The "30-day stay" under § 362(c)(3)

The best way to understand this Code provision is to consider individual elements beginning with the triggering language:

. . . if 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).

Rephrased, this has two elements. First, there must have been one prior case within the last year before the current case.⁸¹ Second, the prior case must have been dismissed for something other than the Section 707(b) dismissal and refiling. If these conditions are met, the operative language is again very specific:

(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. . . .

This operative language contains two landmines. First, the stay is only lifted "with respect to the debtor" and *not* with respect to the estate's interests

. . . when Section 362(c)(3)(A) self-executes, the automatic stay is terminated as to actions against the debtor and property of the debtor but not as to any actions against property of the estate.⁸²

Second, there is no language affecting a co-debtor stay. "The majority approach adopts a plain meaning reading of the statute, interpreting the words "with respect to the debtor" to indicate a limited termination of the automatic stay. . . . Specifically, the majority approach holds that the stay terminates only as to the debtor and property of the debtor under section 362(c)(3)."⁸³

Notwithstanding any of the foregoing, the stay may be continued on motion of any party in interest under § (3)(B) if that party "demonstrates that the filing of the later case is in good faith as to the creditors to be stayed." Section 362(c)(3)(C) goes on to indicate

. . . a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—

(i) as to all creditors, if—

(I) more than 1 previous case under any of chapters 7, 11, and 13 in which the individual was a debtor was pending within the preceding 1-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 1-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 subsection (d) 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 limiting the stay as to actions of such creditor. . . .

The statute provides relatively strict guidance, however, as a practical matter, the court weighs the statutory requirements against the underlying rehabilitative purpose of the court, so motions to extend the stay may be more successful than a strict reading of the statute might otherwise suggest.

2. No stay under § 362(c)(4)

Under a slightly different factual scenario of more than two cases pending within the prior year, the Code directs that no stay comes into effect as to the debtor.

By contrast, Section 362(c)(4) applies to multiple repeat filers, meaning debtors who have had two or more bankruptcy cases dismissed within the previous year. For multiple repeat filers, the automatic stay does not even go into effect upon the filing of the later case. Instead, a party in interest can seek to have the court impose the automatic stay by filing a motion within 30 days after the filing of the later case.⁸⁴

Once again, there are landmines buried in the text as to co-debtors and the estate:

Section 362(c)(4)(A)(i) expressly provides that, in certain circumstances, "the stay under subsection (a) shall not go into effect upon the filing" of the bankruptcy case. 11 U.S.C. § 362(c)(4) (emphasis added). By its own express and unambiguous terms, Section 362(c)(4)(A) prevents only the stay of Section 362(a) from going into effect when the factual predicate enumerated in Section 362(c)(4) exists. Section 362(c)(4)(A)(i) does not address the applicability of the codebtor stay that arises under Section 1301(a), and it certainly does not provide that the codebtor stay of Section 1301 does not come into effect if the circumstances of Section 362(c)(4) are met . . . the codebtor stay of Section 1301 and the automatic stay of Section 362 arise from independent provisions, and the termination or absence of one does not automatically terminate the other.⁸⁵

Here, the burden of seeking an imposition of the stay falls upon the debtor and again there is language in (c)(4)(D) indicating "a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary) . . . ." Material change in circumstances may be deemed good cause.⁸⁶

3. The "comfort order"

Given the multiple potential issues with relief from stay for multiple filers, the prudent practitioner will take advantage of the statutory mechanism to provide clarity as to whether...