Two-years prospective relief from the automatic bankruptcy stay is a remedy granted for serial bankruptcy filings, under § 362(d)(4)(B), in In re Karpuleon, Case No. 24-80647 in Central Illinois Bankruptcy Court (entered 12/6/2024; Doc. 48).
Facts
Here’s what happened.
Debtor files a Chapter 13 petition on August 22, 2024—this is Debtor’s fourth such petition in the past four years.
At Debtor’s first Chapter 13 filing, back in 2020, Debtor’s defaulted home mortgage has an arrearage of $70,000. Although Debtor’s plan proposes paying that arrearage:
- the plan is never confirmed; and
- Debtor voluntarily dismisses the case six months after filing it.
A year later, Debtor files a second Chapter 13 petition—this time Debtor’s plan is confirmed. The plan requires Debtor to sell five acres of land in Arizona to pay creditors, including the arrearage to Debtor’s home mortgage holder (“Bank”), which is now $89,000. This second bankruptcy persists for nearly two years, but:
- no Arizona land is ever sold;
- the Chapter 13 Trustee distributes only $63.66 to Bank to apply to Debtor’s arrearage; and
- the case is dismissed in August 2023 on the Chapter 13 Trustee’s motion, because of Debtor’s failure to make plan payments.
Four months later, Debtor files a third Chapter 13 petition, along with a plan that, again, proposes to sell Arizona property to fund payments to creditors. The arrearage to Bank on the home mortgage is now $107,000.
In this third case, Bank moves for relief from stay due to post‐petition defaults on home mortgage payments. However, the parties enter into an agreed repayment order.
- Nevertheless, Debtor’s Chapter 13 is dismissed thereafter for Debtor’s failure to make plan payments.
Fourth Bankruptcy & Three Competing Motions
A month after dismissal, Debtor files a fourth Chapter 13 petition (Case No. 24-80647), which filing creates the controversies at hand.
–Debtor’s Motion to Extend Stay
In the fourth bankruptcy, Debtor files a “Motion to Extend the Automatic Stay Under 11 U.S.C. 362(c)(3)(B)” (Doc. 8). Sec. 362(c)(3)(B) provides:
- if a Chapter 13 bankruptcy is filed within 1-year after dismissal of a prior bankruptcy by the same debtor;
- “the stay . . . shall terminate . . . on the 30th day after the filing of the later case”;
- unless the court extends the stay because “the filing of the later case is in good faith as to the creditors to be stayed.”[Fn. 1]
In this fourth Chapter 13 case, the arrearage to Bank on the home mortgage is now $119,000.
–Creditor’s Competing Motion – Requesting Relief from Stay for Two-Years
Bank “has had enough.” And so it:
- files a competing “Motion for In Rem Relief from Automatic Stay, and Request for Two-Year Period of In Rem Relief” under § 362(d)(4)(B) (Doc. 16); and
- objects (Doc. 17) to Debtor’s motion to extend the automatic stay.
In its competing Motion, Bank seeks an order:
- terminating the automatic bankruptcy stay;
- allowing Bank to foreclose on Debtor’s real property; and
- granting prospective relief from the automatic stay as to any future bankruptcy filing by Debtor “within two years.”
Such “within two years” request is based upon specific language in § 362(d)(4)(B) that:
- authorizes a termination of the automatic stay as to actions against debtor’s real property, when debtor has “multiple bankruptcy filings” as “part of a scheme to delay, hinder, or defraud creditors”; and
- such termination “shall be binding in any other case under this title . . . filed not later than 2 years” thereafter.[Fn. 2]
–Debtor’s Motion to Dismiss the Bankruptcy
In response, Debtor files a Motion to Dismiss the fourth bankruptcy case (Doc. 31), for the expressed reason that “the debtor no longer wishes to proceed in the case.”
Rulings
Here’s how the Bankruptcy Court addresses the three competing motions.
–Motion to Extend Stay
The Bankruptcy Court denies Debtor’s motion to extend the stay without written opinion (see Doc. 24).
–Motion to Dismiss
Debtor has a right to dismiss, under §1307(b).
However, Debtor believes such right to dismiss is equivalent to a right of immediate dismissal—i.e., that Debtor’s right to dismiss prevents the Court from considering Creditor’s motion for two-years prospective relief from the automatic stay.
The Bankruptcy Court declares, in response, that Debtor’s argument “is not supported by authority” because § 1307(b) “does not require immediate action.” Instead:
- Fed.R.Bankr.P. 1017(f) requires that a dismissal motion be “filed and served” as required by Rule 9013, which prevents immediate action thereon;
- a bankruptcy court may attach conditions to a dismissal of a Chapter 13 case, such as by providing a bar on refiling for a particular period of time; and
- Debtor cannot defeat Bank’s motion for two-years prospective relief by obtaining an immediate dismissal of the case.
Moreover, Bank has established a prima facie case for the requested relief:
- each of Debtor’s four bankruptcy filings has affected the real property at issue; and
- the only question is whether the most recent filing was part of a “scheme” to “delay” or “hinder” creditor.
Debtor argues for a trial on the “scheme” question, and the Court agrees. Among the factors to be considered at trial, the Court declares, are:
- timing of the bankruptcy cases;
- debtor’s lack of changed circumstances between cases;
- dismissal of previous cases without confirmation or discharge;
- debtor’s inability to fund a plan; and
- debtor’s failure to make mortgage payments for a long time.
–Motion for Relief — Ruling After Trial
The Bankruptcy Court conducts a trial and rules as follows (see Doc. 47, 48 & 49):
- “just cause is shown” for the requested relief from automatic stay and two-years prospective effect;
- “the Automatic Stay is lifted”;
- “Movant is allowed to exercise its state law remedies”; and
- “this Order shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such Order by the Court.”
Additionally, as to Debtor’s motion to dismiss, the Court rules (after trial and after entry of its ruling on Bank’s relief motion) that Debtor’s Chapter 13 case “is hereby dismissed” (see Doc. 49).
Conclusion
Two-years prospective relief from the automatic bankruptcy stay is an important remedy for dealing with serial bankruptcy filings.
In re Karpuleon is a prime illustration.
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Footnote 1. 11 U.S.C. §362(c)(3)(B) provides more fully: “(3) 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, . . . —(A) the stay . . . shall terminate with respect to the debtor on the 30th day after the filing of the later case; (B) on the motion of a party in interest for continuation of the automatic stay . . . , the court may extend the stay . . . as to any or all creditors (subject to such conditions or limitations as the court may then impose) . . . only if the party in interest demonstrates that the filing of the later case is in good faith as to the creditors to be stayed.”
Footnote 2. 11 U.S.C. § 362(d)(4)(B) provides more fully: “(d) . . .the court shall grant relief from the stay . . . , such as by terminating, annulling, modifying, or conditioning such stay— . . . (4) with respect to a stay of an act against real property . . . by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved . . . (B) multiple bankruptcy filings affecting such real property. . . . an order entered under paragraph (4) shall be binding in any other case under this title . . . filed not later than 2 years after the date of the entry of such order by the court” (emphasis added).
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