LEGISLATIVE UPDATE 30-Day Lifting of the Automatic Stay under 362(c)(3)(A) Not What It Purports to Be

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has been
touted as a mechanism to prevent abusive bankruptcy filings by individual debtors.
One of the specific "abuses" that Congress sought to limit was the
practice of repeat filing through revised §362(c)(3)(A). At first blush,
§362(c)(3)(A) purports to lift the automatic stay as to secured or leased
property within 30 days after the filing of a bankruptcy petition if the debtor
was dismissed from a previous bankruptcy case within one year of the filing
of the existing case. Of course, when it comes to the lexical prestidigitation
of statutory construction, few things are ever what they first appear to be.
BAPCPA has barely been in effect for four months, and two recent bankruptcy
opinions have already ripped the teeth out of the 30-day stay-lifting provision
of §362(c)(3)(A).
</p><p>Newly enacted §362(c)(3)(A) provides as follows:
</p><blockquote>
<p>(c) Except as provided in subsections (d), (e), (f) and (h) of this section—
</p>
<blockquote>
<p>(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 one-year period but
was dismissed, other than a case refiled under a chapter other than chapter
7 after dismissal under §707(b)— <br>

(A) the stay under subsection (a) with respect to any action taken with
respect to a debt of property securing such debt or with respect to any
lease shall terminate with respect to the debtor on the 30^th day after the
filing of the later case. </p></blockquote>
</blockquote>
<p>In subsection (B), the statute goes on to outline circumstances where a debtor
can move to continue the automatic stay beyond the 30-day drop-dead period.
</p><p> In the recent decision of <i>In re Johnson</i>, 335 B.R. 805 (Bankr. W.D.
Tenn. 2006), a repeat filer moved to extend the automatic stay with respect
to his home beyond the 30-day drop-dead period pursuant to §362(c)(3)(B).
The bankruptcy court determined that the debtor's motion was, in essence, a
superfluous act because, as far as the court was concerned, the automatic stay
was not eviscerated after 30 days following the bankruptcy filing. In rendering
its decision in this regard, the bankruptcy court focused on the specific language
of §362(c)(3)(A). More particularly, the court noted that §362(c)(3)(A)
dictates that the 30-day time limit only applies to "debts" or "property
of the debtor" and not to "property of the estate" as long as
the subject property remains "property of the estate." <i>Id</i>.
at 806. Noting that the debtor's residence was unquestionably property of the
bankruptcy estate, the court determined that the debtor's request to extend
the automatic stay beyond the 30-day drop-dead period was a futile act. The
court wrote that the automatic stay did not terminate with respect to the debtor's
home on the 30^th day following the bankruptcy filing, but that the
stay remained in effect until the debtor's case is dismissed or discharged or
until the court orders otherwise. The court concluded its opinion by admonishing
that "[a]ny creditor seeking to foreclose or repossess property which is
by statute 'property of the estate' must file an appropriate motion seeking
relief from the automatic stay. If creditors take any action against such property
without first seeking relief, they may be violating the stay." <i>Id</i>.
at 807.

</p><p>If the analysis in <i>Johnson</i> is correct, given the expansive definition
of "property of the estate" under §541 (and §1306 in chapter
13 cases), one wonders if the drop-dead provision of §362(c) (3)(A) would
ever have any real effect. One possibility may be when specific property is
exempted. Pursuant to well-established case law, property that is exempted ceases
to be property of the bankruptcy estate.¹ Thus, it would appear that
if certain property is exempted by a debtor, then the rationale in <i>Johnson</i>
would not apply, and the 30-day drop-dead provision of §362(c)(3)(A) would
act to terminate the automatic stay as to such property after the 30-day limitation
period has expired. Interestingly, a review of the debtor's bankruptcy schedules
in <i>Johnson</i> reveals that the debtor did in fact exempt his home. However,
the <i>Johnson</i> court apparently did not consider this fact when rendering
its decision.
</p><p>Statutory flyspecking has also substantially limited the impact of §362(c)(3)(A)
in the Eastern District of North Carolina. In <i>In re Paschal</i>, 2006 WL
258298 (Bankr. E.D.N.C. 2006), as in <i>Johnson</i>, a chapter 13 debtor brought
a motion to extend the 30-day drop-dead provision of §362(c)(3)(A). Although
acknowledging that the legislative history "suggests" that in enacting
§362(c)(3)(A), Congress intended to "terminate all of the protections
of the automatic stay" <i>Id</i>. at *3 (emphasis in original), the bankruptcy
court wrote that the statute was a "puzzler," and that the particular
language of the statute failed to accomplish Congress' desired end.

</p><p>In <i>Paschal</i>, the particular statutory phrase that intrigued the bankruptcy
court was the phrase "action taken." As outlined above, §362(c)(3)(A)
lifts the automatic stay as to "any action taken with respect to a debt
of property...." The debtor cleverly argued that under the literal language
of §362(c)(3)(A), the stay only terminates with respect to "actions
taken" by creditors prior to bankruptcy. The debtor contended that since
there were no "actions taken" against the debtor by any creditor prior
to the filing of her current bankruptcy case, no protection provided by the
automatic stay could be terminated by §362(c)(3)(A).
</p><p>In considering the debtor's argument, the bankruptcy court looked to §362(c)(4)(A)(i).
That statute provides that if a debtor is dismissed from two bankruptcy cases
in the prior year and a third case is filed, then "the stay under subsection
(a) shall not go into effect upon the filing of the later case." The bankruptcy
court reasoned that if Congress wanted to terminate the stay of all protections
of the automatic stay in §362(c)(3)(A), it could have easily used language
similar to that in §362(c)(4)(A)(i). Due to the different language regarding
the abridgement of the automatic stay in the same Code section, the court concluded
that §362(c)(3)(A) is not as broad as §362(c)(4)(A)(i), and that all
of the protections of the automatic stay are not eliminated by §362(c)(3)(A).
<i>Id</i>. at *4.
</p><p>In examining the phrase "action taken" in §362(c)(3)(A), the
court also looked to other subsections of §362. The court noted that the
"act" and the term "action taken" are not synonymous and
that the difference is "significant." The court explained:
</p><blockquote>
<p>The term "act" is much broader than the term "action taken."
The term "act" is used in several subsections of the automatic stay;
specifically, the term "act" appears in §362(a)(3) ("any
act to obtain possession of property of the estate or of property from the
estate or to exercise control over property of the estate"), §362
(a)(4) ("any act to create, perfect or enforce any lien against property
of the estate"), §362(a)(5) ("any act to create, perfect or
enforce against property of the debtor any lien to the extent that such lien
secures a claim that arose before the commencement of the case under this
title"), and §362(a)(6) ("any act to collect, assess or recover
a claim against the debtor that arose before the commencement of the case
under this title").<br>
The term "action" also appears in a subsection of the automatic
stay. Section 362(a)(1) provides that the stay operates to prohibit (1) the
commencement or continuation, including the issuance or employment of process,
of a judicial, administrative or other action or proceeding against the debtor
that was or could have been commenced before the commencement of the case
under this title, or to recover a claim against the debtor that arose before
the commencement of the case under this title[.]" <br>
As used in §362(a)(1), the term "action" contemplates a formal
judicial, administrative or similar undertaking. The use of the term "action"
in §362(b) also connotes formal activity. The term "action"
appears in §362(b)(1) ("commencement or continuation of a criminal
action or proceeding"); §362(b)(2)(A) ("commencement or continuation
of a civil action or proceeding"); §362(b)(4) ("action or proceeding
by a governmental unit or any organization exercising authority under the
Convention on the Prohibition of the Development, Production, Stockpiling
and Use of Chemical Weapons and on Their Destruction"); §362(b)(8)
(action to foreclose by Secretary of Housing and Urban Development); §362(b)
(14) ("action by an accrediting agency"); §362(B)(15) ("action
by a state licensing body"); §362(b)(16) (action by a guaranty agency
defined by Higher Education Act of 1965); and §362(b)(22) (continuation
of eviction action); and §362(b) (25)(A) and (B) (action by securities
self regulatory organization). "Action" also appears in §362(c)(3)(C)(ii),
referring to commencing an action under subsection 362(d), a formal motion
for relief from the automatic stay.,<br>
<i>Id</i>. at *5(emphasis in original). </p>

</blockquote>
<p>Based on the above, the court concluded that the term "action" in
§362(c)(3)(A) means a formal action such as a judicial, administrative,
governmental, quasi-judicial or other formal activity or proceeding. The court
held that because no "actions" were taken against the debtor pre-bankruptcy,
no protections of the automatic stay were terminated under §362(c)(3)(A).
<i>Id</i>. at *6.
</p><p> Based on the plain language of §362(c)(3)(A), the analyses adopted by
the <i>Johnson</i> and <i>Paschal</i> courts are not without support. Do those
decisions dovetail with the likely intentions of Congress in enacting BAPCPA
and, more specifically, §362(c)(3)(A)? The answer is subject to legitimate
debate. One thing that is certain is that <i>Johnson</i> and <i>Paschal</i>
are only the tip of the iceberg. BAPCPA is clearly replete with "puzzlers"
that are far more enigmatic than §362(c)(3)(A). Curbing bankruptcy abuse
may well have been the desired end of Congress in enacting BAPCPA, but it remains
to be seen whether the judicial interpretations of BAPCPA serve that end.

</p><p></p><h3>Footnotes</h3>
<p>1 <i>See</i>, <i>e.g.</i>, <i>In re Dolen</i>, 265 B.R. 471, 487 (Bankr. M.D.
Fla. 2001) (when a debtor claims exempt property, the property is removed from
property of the estate); <i>In re Soost</i>, 262 B.R. 68, 72 (8th Cir. BAP 2001)
("exempted property is no longer part of the bankruptcy estate").