What Automatic Stay?

Statutory Overview

The essence of Bankruptcy Code ” 362(c)(3) and (4) is that if a debtor's case is dismissed, any refiling within a year must be in good faith. (Note, the statute provides, however, that a case dismissed as an abuse under ' 707(b) is not considered a case dismissed for these purposes.) A case resulting in a discharge, or converted to another chapter will also not count as a prior case for these purposes. See In re Ball, 336 B.R. 268 (Bankr. M.D. N.Car. 2006). If the refiled case is the second case within a year, the automatic stay terminates by operation of law for many purposes 30 days after the filing unless the court orders otherwise during the 30-day period (362(c)(3)(B)). If the refiled case is the third or more within a year, the automatic stay: ' ' shall not go into effect ' ' unless the court orders otherwise in a motion filed within 30 days of the latter case filing (362(c)(4)(A)(B)). Other than these two provisions, ” 362(c)(3) and 362(c)(4) are virtually identical.

The kicker to each section, however, is that a presumption arises that a case is not filed in good faith in one of four instances. The first instance is if two or more cases were pending within the past year (362(c)(3)(C)(i)(I); 362(c)(4)(D)(i)(I)). The second in-stance is if a prior case was dismissed for failure to file required documents, perform an adequate protection order, or the debtor defaulted in performing a confirmed plan (362(c)(3)(C)(i)(II); 362(c)(4)(D)(i)(II)). Third, if there has not been a substantial change in circumstances or any other reason for the court to believe there will be a discharge or confirmed plan (362(c)(3)(C)(i)(III); 362(c)(4)(D)(i)(III)). Finally, the presumption arises as to any creditor who had a motion for relief from stay pending or resolved in the creditor's favor at the time of the prior dismissal (362(c)(3)(C)(ii); 362(c)(4)(D)(ii)). When the presumption arises that a case has not been filed in good faith, it may only be rebutted by clear and convincing evidence (362(c)(3)(C); 362(c)(4)(D)).

Case Law Issues

Due Process

Section 362(c)(3)(B) requires that a Motion to Extend or Impose the Stay (a commonly used appellation for motions under these Code provisions) be brought and heard within 30 days of filing, or no relief can be granted. Section 362(c)(4) requires that a Motion to Impose Stay be filed within 30 days of the case filing, but need not be heard until a later date. In examining these provisions, the courts have found that if a motion is not timely filed, the court may not grant the relief requested (See In re Toro-Acila, 334 B.R. 224 (Bankr. S.D. TX (2005); In re Wright, 339 B.R. 474 (Bankr. E.D. Ark. 2006); In re Ziol-kowski, 338 B.R. 543 (Bankr. D. Conn. 2006)). It has also been held that a motion which would be untimely under 362(C)(3) because it cannot be heard within 30 days of the case filing may nonetheless be brought under 362(c)(4) (See In re Beasley, 339 B.R. 472 (Bankr. E.D. Ark. 2006)).

Any party affected by the motion must be afforded due process by service and notice of the motion. In denying without prejudice a motion to extend the stay for insufficient service and notice, the court stated in In re Wilson, 336 B.R. 338 (Bankr. E.D. Tenn. 2005)): 'Under the Bankruptcy Code, 'after notice and a hearing', or a similar phrase ' means after such notice as is appropriate in the particular circumstances, and such opportunity for hearing as is appropriate in the particular circumstances.'

Similarly, In re Collins, 334 B.R. 655 (Bankr. D. Minn. 2005) succinctly stated the due process concerns in denying a motion due to inadequate service: 'These principles all dictate that the notice requisite for a motion under ' 362(c)(3)(B) to extend the stay of '362(c)(3)(A) is, at the very least, service on those individual creditors that the debtor would have subjected to the extended stay and, most prophylactically, on all creditors.'

Since the provisions have been found to apply to unsecured as well as secured creditors, a party seeking to impose or extend the stay should serve all creditors (In re Charles, 332 B.R. 538 (Bankr. SD. Tex. (2005); In re Collins, supra; In re Kurtzahn, 337 B.R. 356 (Bankr. D. Minn. 2006); In re Mark, 336 B.R. 260 (Bankr. Md. (2006)).

Requirements and Burden of Proof

The basic requirements of what a moving party must do to obtain an extension or imposition of the automatic stay were stated in the very first reported opinion In re Charles, 332 B.R. 538 (B.R. 538 Bankr. S.D. Tx. (2005)) and have been followed in subsequent cases: '1) A motion must be filed; 2) There must be notice and a hearing; 3) The notice and hearing must be completed before the expiration of the original 30-day stay; and 4) the debtor must prove that the filing of the new case 'is in good faith as to the creditors to be stayed.” In re Collins, 335 B.R. 646 (Bankr. S.D. Tex. (2005)), observed: 'The bulk of any analysis is on the fourth requirement.'

When the presumption that a case is not filed in good faith arises, the party bringing a motion to impose or extend the stay bears the burden of proof by clear and convincing evidence that the case was filed in good faith: ” where a presumption such as ' 362(c)(3)(C) arises, the burden shifts back to the movant to present clear and convincing evidence in support of the motion.' In re Montoya, 333 B.R. 449 (Bankr. D. Utah (2005)). The Montoya court also succinctly stated the standard of proof by clear and convincing evidence: 'Clear and convincing evidence is 'weight of proof which produces in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable the fact finder to come to a clear conviction, without hesitancy, of the truth of the precise facts of the case.' (Citations omitted).

When the evidentiary standard is not clear and convincing, the standard remains the traditional preponderance of evidence standard with which practitioners will be familiar. In In re Charles, supra, the court stated: 'Absent a statute or rule to the contrary, the burden of proof in a bankruptcy case is by a preponderance of the evidence.' See also, In re Galanis, 334 B.R. 685 (Bankr. D. Utah (2005)); In re Ball, supra).

In re Wilson, supra, provides a synopsis of the minimum record that a moving party should present to satisfy the requisite burden of proof. The record should identify whether the motion is being made as to all creditors or single creditors; the case numbers and the commencement and dismissal dates of cases pending within the previous year; any other facts giving rise to any of the presumptions contained in ” 362(c)(3)(C) or 362(c)(4)(D); and, any facts evidencing the debtor's substantial change in circumstances and any other reason that will support the contention that the present case will result in a discharge or a confirmed plan that is likely to be performed.

Good Faith

Regardless of the evidentiary standard to apply, the ultimate issue is whether or not the moving party ” demonstrates that the filing of the later case is in good faith as to the creditors to be stayed.' (In re Charles, 334 B.R. 207 (Bankr. S.D. Tex. (2005); In re Mark, supra). The rapid evolution of the case law regarding the good faith element of Sections 362(c)(3)(4) suggests that a case must be found to have been filed objectively and subjectively in good faith. As stated by the court in Charles, supra: 'Good faith may be determined on both an objective basis and on a subjective basis.' See also, In re Mark, supra; In re Kurtzahn, supra).

A case is objectively filed in good faith if the debtor has adequate income to propose, confirm and perform a feasible plan if the case is a Chapter 13, or in the case of a Chapter 7, if the debtor's case is likely to result in the debtor receiving a discharge. In re Charles, supra: 'For the purposes of objective good faith, the Court analyzes whether this case is likely to result in a discharge.'

A case is filed subjectively in good faith if the totality of circumstances indicate no improper motive for the filing: 'For the purposes of subjective good faith, the Court employs the 'totality of the circumstances' test in analyzing the debtor's motives and her relationship with her creditors. In cases addressing a debtor's good faith in filing a petition or plan, the subjective analysis is generally performed only upon a determination that the debtor first establishes objective good faith.' A creditor may stipulate that a case is brought in good faith as to the particular creditor. In re Charles, supra.

In re Galanis, supra, identifies factors to consider in determining subjective good faith: '1) the timing of the petition; 2) how the debt(s) arose; 3) the debtor's motive in filing the petition; 4) how the debtor's actions affected creditors; 5) why the debtor's prior case was dismissed; 6) the likelihood that the debtor will have a steady income throughout the bankruptcy, case, and will be able to properly fund a plan; and 7) whether the Trustee or creditors object to the debtor's motion.' See also In re Havner, 336 B.R. 98 (Bankr. M.D. N.Car. (2006)); In re Baldassaro,338 B.R. 178 (Bankr. N.H. (2006). The decided cases exploring these issues conduct a fact intensive analysis of the various factors, the proof level of which depends upon whether or not the presumption that a case has not been filed in good faith arises.

Next month, we discuss presumption arising, property of the estate, convenience orders, and practical considerations.

David L. Buchbinder, trial attorney with the Office of the United States Trustee, Region 3, Wilmington, DE, is a member of the California, New Jersey and Pennsylvania Bars, and the author of Basic Bankruptcy for Paralegals, published by Aspen Publishing Co. The opinions expressed herein are the personal opinions of the author and not of the Department of Justice or the United States Trustee Program.

Among the abuses of the bankruptcy system to be remedied by The Bankruptcy Abuse Prevention Consumer Protection Act of 2005 (BAPCPA) is that of serial filing. In re Mark, 336 B.R. 260 (Bankr. D. Md. 2006) described a serial filer as: ' ' a person who files time and time again just to daisy-chain automatic stays to the detriment of creditors, but without any real prospect and intent to reorganize.'

To confront this issue, BAPCPA has primarily revised ' 362 of the Bankruptcy Code by significantly amending ' 362(c)(3), and adding a new ' 362(c)(4). Lest there be any doubt that these provisions have this intent, ' 302 of the BAPCPA statute is entitled: 'Curb Abusive Filings.' The very first reported case analyzing these provisions, In re Charles, 332 B.R. 538 (Bankr. S.D. Tex. (2005)), observed:
' ' Congress intended to direct the court to conduct an early triage of refiled cases. Debtors whose cases are doomed to fail should not get the benefit of an extended automatic stay.' As of mid-April 2006, approximately 30 cases had been published interpreting these new provisions, making this area one of the more hotly litigated BAPCPA amendments to the Bankruptcy Code.

The purpose of this article is to provide a brief overview of these new provisions, summarize the various issues examined by the courts to date, and provide some practical recommendations from the perspectives of debtor or creditor.

Statutory Overview

The essence of Bankruptcy Code ” 362(c)(3) and (4) is that if a debtor's case is dismissed, any refiling within a year must be in good faith. (Note, the statute provides, however, that a case dismissed as an abuse under ' 707(b) is not considered a case dismissed for these purposes.) A case resulting in a discharge, or converted to another chapter will also not count as a prior case for these purposes. See In re Ball, 336 B.R. 268 (Bankr. M.D. N.Car. 2006). If the refiled case is the second case within a year, the automatic stay terminates by operation of law for many purposes 30 days after the filing unless the court orders otherwise during the 30-day period (362(c)(3)(B)). If the refiled case is the third or more within a year, the automatic stay: ' ' shall not go into effect ' ' unless the court orders otherwise in a motion filed within 30 days of the latter case filing (362(c)(4)(A)(B)). Other than these two provisions, ” 362(c)(3) and 362(c)(4) are virtually identical.

The kicker to each section, however, is that a presumption arises that a case is not filed in good faith in one of four instances. The first instance is if two or more cases were pending within the past year (362(c)(3)(C)(i)(I); 362(c)(4)(D)(i)(I)). The second in-stance is if a prior case was dismissed for failure to file required documents, perform an adequate protection order, or the debtor defaulted in performing a confirmed plan (362(c)(3)(C)(i)(II); 362(c)(4)(D)(i)(II)). Third, if there has not been a substantial change in circumstances or any other reason for the court to believe there will be a discharge or confirmed plan (362(c)(3)(C)(i)(III); 362(c)(4)(D)(i)(III)). Finally, the presumption arises as to any creditor who had a motion for relief from stay pending or resolved in the creditor's favor at the time of the prior dismissal (362(c)(3)(C)(ii); 362(c)(4)(D)(ii)). When the presumption arises that a case has not been filed in good faith, it may only be rebutted by clear and convincing evidence (362(c)(3)(C); 362(c)(4)(D)).

Case Law Issues

Due Process

Section 362(c)(3)(B) requires that a Motion to Extend or Impose the Stay (a commonly used appellation for motions under these Code provisions) be brought and heard within 30 days of filing, or no relief can be granted. Section 362(c)(4) requires that a Motion to Impose Stay be filed within 30 days of the case filing, but need not be heard until a later date. In examining these provisions, the courts have found that if a motion is not timely filed, the court may not grant the relief requested (See In re Toro-Acila, 334 B.R. 224 (Bankr. S.D. TX (2005); In re Wright, 339 B.R. 474 (Bankr. E.D. Ark. 2006); In re Ziol-kowski, 338 B.R. 543 (Bankr. D. Conn. 2006)). It has also been held that a motion which would be untimely under 362(C)(3) because it cannot be heard within 30 days of the case filing may nonetheless be brought under 362(c)(4) (See In re Beasley, 339 B.R. 472 (Bankr. E.D. Ark. 2006)).

Any party affected by the motion must be afforded due process by service and notice of the motion. In denying without prejudice a motion to extend the stay for insufficient service and notice, the court stated in In re Wilson, 336 B.R. 338 (Bankr. E.D. Tenn. 2005)): 'Under the Bankruptcy Code, 'after notice and a hearing', or a similar phrase ' means after such notice as is appropriate in the particular circumstances, and such opportunity for hearing as is appropriate in the particular circumstances.'

Similarly, In re Collins, 334 B.R. 655 (Bankr. D. Minn. 2005) succinctly stated the due process concerns in denying a motion due to inadequate service: 'These principles all dictate that the notice requisite for a motion under ' 362(c)(3)(B) to extend the stay of '362(c)(3)(A) is, at the very least, service on those individual creditors that the debtor would have subjected to the extended stay and, most prophylactically, on all creditors.'

Since the provisions have been found to apply to unsecured as well as secured creditors, a party seeking to impose or extend the stay should serve all creditors (In re Charles, 332 B.R. 538 (Bankr. SD. Tex. (2005); In re Collins, supra; In re Kurtzahn, 337 B.R. 356 (Bankr. D. Minn. 2006); In re Mark, 336 B.R. 260 (Bankr. Md. (2006)).

Requirements and Burden of Proof

The basic requirements of what a moving party must do to obtain an extension or imposition of the automatic stay were stated in the very first reported opinion In re Charles, 332 B.R. 538 (B.R. 538 Bankr. S.D. Tx. (2005)) and have been followed in subsequent cases: '1) A motion must be filed; 2) There must be notice and a hearing; 3) The notice and hearing must be completed before the expiration of the original 30-day stay; and 4) the debtor must prove that the filing of the new case 'is in good faith as to the creditors to be stayed.” In re Collins, 335 B.R. 646 (Bankr. S.D. Tex. (2005)), observed: 'The bulk of any analysis is on the fourth requirement.'

When the presumption that a case is not filed in good faith arises, the party bringing a motion to impose or extend the stay bears the burden of proof by clear and convincing evidence that the case was filed in good faith: ” where a presumption such as ' 362(c)(3)(C) arises, the burden shifts back to the movant to present clear and convincing evidence in support of the motion.' In re Montoya, 333 B.R. 449 (Bankr. D. Utah (2005)). The Montoya court also succinctly stated the standard of proof by clear and convincing evidence: 'Clear and convincing evidence is 'weight of proof which produces in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established, evidence so clear, direct and weighty and convincing as to enable the fact finder to come to a clear conviction, without hesitancy, of the truth of the precise facts of the case.' (Citations omitted).

When the evidentiary standard is not clear and convincing, the standard remains the traditional preponderance of evidence standard with which practitioners will be familiar. In In re Charles, supra, the court stated: 'Absent a statute or rule to the contrary, the burden of proof in a bankruptcy case is by a preponderance of the evidence.' See also, In re Galanis, 334 B.R. 685 (Bankr. D. Utah (2005)); In re Ball, supra).

In re Wilson, supra, provides a synopsis of the minimum record that a moving party should present to satisfy the requisite burden of proof. The record should identify whether the motion is being made as to all creditors or single creditors; the case numbers and the commencement and dismissal dates of cases pending within the previous year; any other facts giving rise to any of the presumptions contained in ” 362(c)(3)(C) or 362(c)(4)(D); and, any facts evidencing the debtor's substantial change in circumstances and any other reason that will support the contention that the present case will result in a discharge or a confirmed plan that is likely to be performed.

Good Faith

Regardless of the evidentiary standard to apply, the ultimate issue is whether or not the moving party ” demonstrates that the filing of the later case is in good faith as to the creditors to be stayed.' (In re Charles, 334 B.R. 207 (Bankr. S.D. Tex. (2005); In re Mark, supra). The rapid evolution of the case law regarding the good faith element of Sections 362(c)(3)(4) suggests that a case must be found to have been filed objectively and subjectively in good faith. As stated by the court in Charles, supra: 'Good faith may be determined on both an objective basis and on a subjective basis.' See also, In re Mark, supra; In re Kurtzahn, supra).

A case is objectively filed in good faith if the debtor has adequate income to propose, confirm and perform a feasible plan if the case is a Chapter 13, or in the case of a Chapter 7, if the debtor's case is likely to result in the debtor receiving a discharge. In re Charles, supra: 'For the purposes of objective good faith, the Court analyzes whether this case is likely to result in a discharge.'

A case is filed subjectively in good faith if the totality of circumstances indicate no improper motive for the filing: 'For the purposes of subjective good faith, the Court employs the 'totality of the circumstances' test in analyzing the debtor's motives and her relationship with her creditors. In cases addressing a debtor's good faith in filing a petition or plan, the subjective analysis is generally performed only upon a determination that the debtor first establishes objective good faith.' A creditor may stipulate that a case is brought in good faith as to the particular creditor. In re Charles, supra.

In re Galanis, supra, identifies factors to consider in determining subjective good faith: '1) the timing of the petition; 2) how the debt(s) arose; 3) the debtor's motive in filing the petition; 4) how the debtor's actions affected creditors; 5) why the debtor's prior case was dismissed; 6) the likelihood that the debtor will have a steady income throughout the bankruptcy, case, and will be able to properly fund a plan; and 7) whether the Trustee or creditors object to the debtor's motion.' See also In re Havner, 336 B.R. 98 (Bankr. M.D. N.Car. (2006)); In re Baldassaro,338 B.R. 178 (Bankr. N.H. (2006). The decided cases exploring these issues conduct a fact intensive analysis of the various factors, the proof level of which depends upon whether or not the presumption that a case has not been filed in good faith arises.

Next month, we discuss presumption arising, property of the estate, convenience orders, and practical considerations.

David L. Buchbinder, trial attorney with the Office of the United States Trustee, Region 3, Wilmington, DE, is a member of the California, New Jersey and Pennsylvania Bars, and the author of Basic Bankruptcy for Paralegals, published by Aspen Publishing Co. The opinions expressed herein are the personal opinions of the author and not of the Department of Justice or the United States Trustee Program.