What Automatic Stay?

The first situation in which the presumption will arise is if 2 or more cases in which the individual was a debtor were pending within the preceding year. Section 362(c)(3)(C) states ' … more than 1 previous case … ', however, while ' 362(c)(4)(D) states ' … 2 or more previous cases … ' One court has observed: 'The Court cannot discern any difference between '2 or more previous cases' and 'more than 1 previous case.” In re Montoya, 333 B.R. 449 (Bankr. D. Utah (2005). At least one court has held that a case is no longer pending when a dismissal order is entered as opposed to when the court actually closes out the docket:

The closing of a case is a purely administrative function and requires no substantive decision-making ' Therefore, the plain meaning of the word 'pending' demonstrates that a case is no longer pending once the Court has dismissed it.

In re Easthope, 2006 WL 851829 (Bankr. Utah (2006).

The second situation in which the presumption will arise is if the prior case was dismissed after either: the debtor failed to file or amend the petition or required documents with the court; failed to provide court ordered adequate protection; or failed to perform the terms of a confirmed plan (362(c)(3)(C)(i); 362(c)(4)(D)(i)). For example, In re Montoya, supra, implicated this provision because the prior case was dismissed due to a default in a confirmed plan. But, where the debtor dismissed a case prior to confirmation, the provision was not invoked because there was no default in a confirmed plan. See, e.g., In re Warneck, supra, where dismissal that took place prior to confirmation of a Chapter 13 plan was found to not trigger this provision.

The third situation in which the presumption will arise is if there has not been a substantial change in circumstances or any other reason for the court to believe there will be either a discharge or confirmed plan. This determination is the ultimate test of these provisions: ' … the ultimate issue of fact loops back around to feasibility. Colloquially, the question would be, 'if the debtor didn't make the prior case work, what is there now that will make this one succeed?” In re Kurtzahn, 337 B.R. 356 (Bankr. D. Minn. 2006).

In cases finding the burden of proof sustained and that extend or impose the stay, the evolving standard seeks material changed circumstances, such as a significant increase in income by employment or contribution by a third party, or elimination of the facts or factors that caused the financial distress, such as changing health conditions. In In re Baldassaro, 338 B.R. 178 (Bankr. N.H. (2006), the court cited to an ' … an improved medical prognosis and increased household income' in granting the motion. A third party contribution to the plan from a family member who also voluntarily consented to a wage order resulted in the motion being granted in In re Charles, 332 B.R. 538 (B.R. 538 Bankr. S.D. Tx. (2005). The motion was granted where income increased and the debtor proposed a 100% plan in In re Mark, supra: 'The evidence demonstrates … a reasonable expectation based upon present facts that he will generate sufficient income to succeed in his financial reorganization.' In re Ball, 336 B.R. 268 (Bankr. M.D. N.Car. 2006) involved increased income in a Chapter 20 (A Chapter 13 filed shortly after a debtor receives a Chapter 7 discharge) context and the motion were granted.

On the other hand, where the courts find circumstances unchanged, the changes merely cosmetic, or the debtor is an inveterate serial filer, the motion is generally not granted. In In re Collins, 335 B.R. 646, where the debtor's income had decreased, expenses increased, and it was the fifth filing, the motion was denied: 'There is no evidence that the Debtor can propose a feasible plan based on the numbers before the Court.' In finding no changed circumstances and where the case was the fourth filing, the court in In re Kurtzahn, supra, stated: ' … Congress clearly intended to make a debtor in a successor case under Chapter 13 prove early that she could perform through the end of the term of her plan, and to establish that by compelling evidence.'

The fourth instance in which the presumption will arise, is if a prior case had a pending action by a creditor that was pending or had been resolved prior to dismissal of the case. This instance only applies to the creditors meeting its condition. See, e.g., In re Baldassaro, supra. When the presumption arises under this provision, the moving party is required to satisfy the requisite burden of proof as to the affected creditors.

Property of the Estate

One emerging issue under these provisions is whether or not they apply at all as to property of the estate, at least with respect to a second filing within a year that is subject to ' 362(c)(3)(A), because this provision is limited to actions ' … taken with respect to a debt or property securing such debt … ', while ' 362(c)(4) provides that the stay does not go into effect at all. In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. (2006)) held that since the language of ' 362(c)(3) (A) does not include 'property of the estate': 'As a result, the automatic stay continues to protect 'property of the estate' as long as it remains 'property of the estate.” This ruling was followed in In re Jones, 339 B.R. 360 (Bankr. E.D. N.Car. (2006), and has been noted in other cases that disposed of the matter on other grounds. Omission of the phrase 'property of the estate' from ' 362(c)(3)(A) may act to limit its efficacy.

Convenience Orders

When ' 362(c)(4) applies, a creditor may move the court for an order confirming that no stay is in effect. This provision is contained at ' 362(c)(4)(A)(ii) and also at ' 362(j). The one court that has examined these provisions observed that a convenience order that no stay is in effect may be made on an ex parte basis. See In re Parker, 336 B.R. 678 (Bankr. S.D.N.Y. (2006)).

Practical Considerations

When bringing a motion to extend or impose the automatic stay, the party bringing the motion should do so as promptly as possible at or after the filing of a petition. Where the matter must be heard within 30 days, as under ' 362(c)(3), the moving party should act appropriately to obtain a prompt hearing date including an Application for Order Shortening Time or other equivalent motion. Where no stay may be in effect at all, as under ' 362(c)(4), a moving party should attempt to obtain the equivalent of a temporary restraining order maintaining the stay in effect pending the outcome of the hearing. Although notice of any hearing need only be given to those creditors sought to be affected by the motion, the better practice is to serve all creditors, any Interim Chapter 7 trustee or Chapter 13 trustee, and the United States Trustee. The record should set forth all the facts necessary to satisfy the clear and convincing evidentiary standard. Unless the court can be convinced that the debtor will receive a discharge or has a likelihood to confirm and perform a plan, a motion to extend or impose the stay will be denied.

Creditors may seek an ex parte order that no stay is in effect. This can be done at the beginning of a case and, where applicable, will result in secured creditors being able to act to obtain prompt relief. A convenience order that no stay is in effect can be utilized to confirm to a non-bankruptcy court or other authority that there is no automatic stay in effect and may also act to defend any subsequent actions alleged to be violations of the automatic stay.

On the other hand, creditors not used to receiving pleadings from debtors at the inception of a bankruptcy case may need to adjust internal procedures to ensure prompt receipt of any motion to extend or impose the stay that may be scheduled to be heard on an expedited time frame. In In re Frazier, 339 B.R. 516 (Bankr. N.D. Fla. (2006)) debtor's counsel telephoned creditor's counsel and served the motion by e-mail and fax. The creditor did not oppose the motion and the stay was imposed. The court denied the creditor's motion for reconsideration on the ground that the creditor did not receive proper notice, stating: 'The limited automatic stay for repeat filers is a major feature of BAPCPA which was passed by Congress at the behest of the credit industry. Now that they have it, the credit industry, and especially the mortgage servicing companies and the law firms they retain to represent them, need to adapt their practices in order to deal with what they have created.'

Creditors may also consider the use of these provisions to obtain a prompt stipulation for adequate protection, relief from stay or other similar document without the necessity of seeking and obtaining relief from the stay through the procedures of ' 362(d). As noted above, a creditor may always agree to extend or impose the stay as to it.

Conclusion

There is no doubt that in enacting
” 362(c)(3) and (4) that Congress intended to limit the effectiveness of the automatic stay for repeat filers. The solution created by these provisions shifts the burden from the creditor to the debtor to obtain an order that there is an automatic stay in effect in a qualified situation. Unless a debtor can convince the court that a case will end in a discharge or a confirmed feasible plan as a result of material changed circumstances, it will be difficult for a debtor to extend or impose the stay. The paradigm was stated by the court in the very first opinion In re Charles, supra: '… 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.'

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 United States Trustee Program.

In last month's article, we stated that among the abuses of the bankruptcy system to be remedied by BAPCPA is that of serial filing. The purpose of this two-part article is to provide a brief overview of BAPCPA's new provisions in revised ' 362 of the Bankruptcy Code, to summarize the various issues examined by the courts to date, and to provide some practical recommendations from the perspectives of debtor or credit. We continue this month with a discussion of presumption.

Presumption Arising

The presumption that a case has not been filed in good faith arises in three situations applicable to all creditors. A fourth situation affects creditors who filed motions for relief from the automatic stay in a previous case (362(c)(3)(C); 362(c)(4)(D)). 'As to an extension that would apply to all creditors, there are three sub-parts to this analysis, the first two being historical inquiries and the third requiring an investigation into current circumstances of the debtor.' (In re Mark, 336 B.R. 260 (Bankr. Md. (2006); In re Warneck, 336 B.R. 181 (Bankr. S.D.N.Y. (2006)).

The first situation in which the presumption will arise is if 2 or more cases in which the individual was a debtor were pending within the preceding year. Section 362(c)(3)(C) states ' … more than 1 previous case … ', however, while ' 362(c)(4)(D) states ' … 2 or more previous cases … ' One court has observed: 'The Court cannot discern any difference between '2 or more previous cases' and 'more than 1 previous case.” In re Montoya, 333 B.R. 449 (Bankr. D. Utah (2005). At least one court has held that a case is no longer pending when a dismissal order is entered as opposed to when the court actually closes out the docket:

The closing of a case is a purely administrative function and requires no substantive decision-making ' Therefore, the plain meaning of the word 'pending' demonstrates that a case is no longer pending once the Court has dismissed it.

In re Easthope, 2006 WL 851829 (Bankr. Utah (2006).

The second situation in which the presumption will arise is if the prior case was dismissed after either: the debtor failed to file or amend the petition or required documents with the court; failed to provide court ordered adequate protection; or failed to perform the terms of a confirmed plan (362(c)(3)(C)(i); 362(c)(4)(D)(i)). For example, In re Montoya, supra, implicated this provision because the prior case was dismissed due to a default in a confirmed plan. But, where the debtor dismissed a case prior to confirmation, the provision was not invoked because there was no default in a confirmed plan. See, e.g., In re Warneck, supra, where dismissal that took place prior to confirmation of a Chapter 13 plan was found to not trigger this provision.

The third situation in which the presumption will arise is if there has not been a substantial change in circumstances or any other reason for the court to believe there will be either a discharge or confirmed plan. This determination is the ultimate test of these provisions: ' … the ultimate issue of fact loops back around to feasibility. Colloquially, the question would be, 'if the debtor didn't make the prior case work, what is there now that will make this one succeed?” In re Kurtzahn, 337 B.R. 356 (Bankr. D. Minn. 2006).

In cases finding the burden of proof sustained and that extend or impose the stay, the evolving standard seeks material changed circumstances, such as a significant increase in income by employment or contribution by a third party, or elimination of the facts or factors that caused the financial distress, such as changing health conditions. In In re Baldassaro, 338 B.R. 178 (Bankr. N.H. (2006), the court cited to an ' … an improved medical prognosis and increased household income' in granting the motion. A third party contribution to the plan from a family member who also voluntarily consented to a wage order resulted in the motion being granted in In re Charles, 332 B.R. 538 (B.R. 538 Bankr. S.D. Tx. (2005). The motion was granted where income increased and the debtor proposed a 100% plan in In re Mark, supra: 'The evidence demonstrates … a reasonable expectation based upon present facts that he will generate sufficient income to succeed in his financial reorganization.' In re Ball, 336 B.R. 268 (Bankr. M.D. N.Car. 2006) involved increased income in a Chapter 20 (A Chapter 13 filed shortly after a debtor receives a Chapter 7 discharge) context and the motion were granted.

On the other hand, where the courts find circumstances unchanged, the changes merely cosmetic, or the debtor is an inveterate serial filer, the motion is generally not granted. In In re Collins, 335 B.R. 646, where the debtor's income had decreased, expenses increased, and it was the fifth filing, the motion was denied: 'There is no evidence that the Debtor can propose a feasible plan based on the numbers before the Court.' In finding no changed circumstances and where the case was the fourth filing, the court in In re Kurtzahn, supra, stated: ' … Congress clearly intended to make a debtor in a successor case under Chapter 13 prove early that she could perform through the end of the term of her plan, and to establish that by compelling evidence.'

The fourth instance in which the presumption will arise, is if a prior case had a pending action by a creditor that was pending or had been resolved prior to dismissal of the case. This instance only applies to the creditors meeting its condition. See, e.g., In re Baldassaro, supra. When the presumption arises under this provision, the moving party is required to satisfy the requisite burden of proof as to the affected creditors.

Property of the Estate

One emerging issue under these provisions is whether or not they apply at all as to property of the estate, at least with respect to a second filing within a year that is subject to ' 362(c)(3)(A), because this provision is limited to actions ' … taken with respect to a debt or property securing such debt … ', while ' 362(c)(4) provides that the stay does not go into effect at all. In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. (2006)) held that since the language of ' 362(c)(3) (A) does not include 'property of the estate': 'As a result, the automatic stay continues to protect 'property of the estate' as long as it remains 'property of the estate.” This ruling was followed in In re Jones, 339 B.R. 360 (Bankr. E.D. N.Car. (2006), and has been noted in other cases that disposed of the matter on other grounds. Omission of the phrase 'property of the estate' from ' 362(c)(3)(A) may act to limit its efficacy.

Convenience Orders

When ' 362(c)(4) applies, a creditor may move the court for an order confirming that no stay is in effect. This provision is contained at ' 362(c)(4)(A)(ii) and also at ' 362(j). The one court that has examined these provisions observed that a convenience order that no stay is in effect may be made on an ex parte basis. See In re Parker, 336 B.R. 678 (Bankr. S.D.N.Y. (2006)).

Practical Considerations

When bringing a motion to extend or impose the automatic stay, the party bringing the motion should do so as promptly as possible at or after the filing of a petition. Where the matter must be heard within 30 days, as under ' 362(c)(3), the moving party should act appropriately to obtain a prompt hearing date including an Application for Order Shortening Time or other equivalent motion. Where no stay may be in effect at all, as under ' 362(c)(4), a moving party should attempt to obtain the equivalent of a temporary restraining order maintaining the stay in effect pending the outcome of the hearing. Although notice of any hearing need only be given to those creditors sought to be affected by the motion, the better practice is to serve all creditors, any Interim Chapter 7 trustee or Chapter 13 trustee, and the United States Trustee. The record should set forth all the facts necessary to satisfy the clear and convincing evidentiary standard. Unless the court can be convinced that the debtor will receive a discharge or has a likelihood to confirm and perform a plan, a motion to extend or impose the stay will be denied.

Creditors may seek an ex parte order that no stay is in effect. This can be done at the beginning of a case and, where applicable, will result in secured creditors being able to act to obtain prompt relief. A convenience order that no stay is in effect can be utilized to confirm to a non-bankruptcy court or other authority that there is no automatic stay in effect and may also act to defend any subsequent actions alleged to be violations of the automatic stay.

On the other hand, creditors not used to receiving pleadings from debtors at the inception of a bankruptcy case may need to adjust internal procedures to ensure prompt receipt of any motion to extend or impose the stay that may be scheduled to be heard on an expedited time frame. In In re Frazier, 339 B.R. 516 (Bankr. N.D. Fla. (2006)) debtor's counsel telephoned creditor's counsel and served the motion by e-mail and fax. The creditor did not oppose the motion and the stay was imposed. The court denied the creditor's motion for reconsideration on the ground that the creditor did not receive proper notice, stating: 'The limited automatic stay for repeat filers is a major feature of BAPCPA which was passed by Congress at the behest of the credit industry. Now that they have it, the credit industry, and especially the mortgage servicing companies and the law firms they retain to represent them, need to adapt their practices in order to deal with what they have created.'

Creditors may also consider the use of these provisions to obtain a prompt stipulation for adequate protection, relief from stay or other similar document without the necessity of seeking and obtaining relief from the stay through the procedures of ' 362(d). As noted above, a creditor may always agree to extend or impose the stay as to it.

Conclusion

There is no doubt that in enacting
” 362(c)(3) and (4) that Congress intended to limit the effectiveness of the automatic stay for repeat filers. The solution created by these provisions shifts the burden from the creditor to the debtor to obtain an order that there is an automatic stay in effect in a qualified situation. Unless a debtor can convince the court that a case will end in a discharge or a confirmed feasible plan as a result of material changed circumstances, it will be difficult for a debtor to extend or impose the stay. The paradigm was stated by the court in the very first opinion In re Charles, supra: '… 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.'

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 United States Trustee Program.