Courts are split over the interpretation of Section 362(c)(3). If a previous bankruptcy by an individual was dismissed within one year, does the automatic stay terminate automatically 30 days after the new filing as to both the debtor and the debtor’s property, or only as to the debtor?

If the stay terminates automatically only with respect to a debtor in chapter 7, a creditor could sue only to attach after-acquired property that doesn’t become property of the estate. Consequently, Section 362(c)(3) has no remedy for a secured creditor who can’t foreclose collateral that is estate property, if the automatic stay termination only applies to actions against the debtor.

In an opinion on May 21, Chief Bankruptcy Judge Catherine J. Furay of Madison, Wis., took sides with the minority and explained why the stay must evaporate as to the debtor and estate property given the “plain language of the statute.”

The debtor was an individual in chapter 7. She owed $22,000 to a lender secured by farming equipment, which the lender agreed was worth only $15,000. The debtor made no adequate-protection payments after filing.

On the lender’s motion to modify the automatic stay, Judge Furay granted the motion, finding no equity in the property and concluding that the property was not necessary for a successful reorganization.

Then, Judge Furay said, “It is also possible to question whether relief from stay is even necessary,” citing Section 362(c)(3). If a case by the same individual debtor was dismissed within one year, the subsection says that “the stay . . . shall terminate with respect to the debtor on the 30th day after the filing of the later case.”

The courts, Judge Furay said, “are divided on whether . . . the automatic stay only terminates with respect to non-estate property of the debtor, and remains in effect for property of the estate.” The “majority view,” she said, holds that the stay terminates only as to non-estate property, leaving the stay in place as to estate property. Among the decisions she cited was In re Roach, 555 B.R. 840 (Bankr. M.D. Ala. 2016). To read ABI’s report on Roach, click here.

Including courts in the Seventh Circuit, Judge Furay said that the minority “have determined that the stay terminates as to all the debtor’s property, whether or not it is part of the bankruptcy estate.”

Judge Furay explained why the “plain language of the statute is in concert with the minority view and the history of the statute.” The subsection, she said, “does not say, ‘with respect to non-estate property of the debtor.’ It makes no reference at all to property.” The majority’s interpretation, she said, “has the effect of reading out any utility for relief for secured creditors. It ignores the language that refers to property securing such debt.”

Although the subsection was revised in 2005, Judge Furay said, “the 2005 legislative history still contains no indication that its scope was intended to apply only to the debtor and not to estate property.”

In cases where there is equity in collateral but the stay terminates altogether, Judge Furay explained that a chapter 7 trustee can protect the interests of the estate and other creditors.

Judge Furay modified the stay and authorized the trustee to abandon the collateral.