Repetitive Bankruptcy Filings and the Automatic Stay after Law v. Siegel

Upon the filing of a bankruptcy petition, the automatic stay prohibits creditors from taking any action to collect against debtors or property of the estate during the pendency of the bankruptcy case.[1] Although in certain instances the automatic stay shields honest debtors by giving them a moment to “catch their breath,” there are other instances where debtors have been prone to use the automatic stay as a sword that they swing to stall the inevitable so that the debtor can reap the benefits of delayed proceedings while the debtor’s creditors are forced to stomach the losses that result.

In 2005, Congress created the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which reformed bankruptcy laws in part to address abusive debtors’ repetitive filings. In particular, two new provisions were added to the Bankruptcy Code to prevent or discourage abusive repetitive filings: Section 362(c)(3) now provides for the automatic stay to expire 30 days after the petition if the debtor has had a previous bankruptcy case dismissed during the one-year period prior to the new petition, and § 362(c)(4) provides for no automatic stay to come into effect at all if the debtor has had two or more bankruptcy cases dismissed during the prior one-year period.

However, under § 362(c)(3)(B), the court may extend the stay “after notice and a hearing completed before the expiration of the thirty-day period” if the debtor demonstrates that the filing of the later case is made in good faith. In other words, the debtor must file and have a hearing on a motion to extend. Similarly, if there have been multiple bankruptcies dismissed within the previous year, the debtor may attempt to make a demonstration of good faith under the appropriate provision, § 362(c)(4)(B), by filing what is commonly known as a motion to impose.

In regards to this provision, a problem frequently arises wherein debtors or their attorneys neglect to file a motion to extend the automatic stay and complete a hearing within the 30-day period after the filing of the second case. Traditionally, some courts have given debtors significant leeway in this regard.

For example, in In re Douglas,[2] a pro se debtor entirely neglected to either file a motion or have a hearing on said motion within the applicable 30-day period. Nevertheless, the court ruled that it had the authority to create a new prospective injunction for good cause shown after the 30-day period. Notably, the court did not make a finding as to the “good faith” of the filing, which would have been the applicable standard on a motion to impose the automatic stay pursuant to § 362(c)(4), but instead indicated a desire to give the debtor a “chance to succeed.”

Other courts have taken the position that the motion must indeed be filed within 30 days of the petition date in the later case, but if the matter is not adjudicated until a later time, the stay may be imposed prospectively without retroactive effect.[3] In Furlong, the court insisted that by entertaining a motion to reconsider the denial of the debtor’s motion to extend the automatic stay, and thereby allowing the hearing to take place outside of the 30 days, it was merely exercising its right to control its own docket while ensuring that the process was fair. In the words of the court, “[t]he statute does not address whether the court retains or loses the power to order the stay into effect at a subsequent point in time.”[4]

However, this liberal view of a bankruptcy court’s authority does not neatly mesh with the Supreme Court’s 2014 decision in Law v. Siegel.[5] In Siegel, the Court acknowledged that a bankruptcy court has statutory authority to issue any order, process or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code (see 11 U.S.C. § 105(a)), and that it also may have certain inherent powers, such as the inherent power to sanction abusive litigation practices. However, “in exercising those statutory and inherent powers, a bankruptcy court may not contravene specific statutory provisions.... Whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code.”[6]

Furthermore, the Court’s analysis was partly based on the extent of “carefully calibrated exceptions and limitations” that were present in the provision of the Code that was being interpreted in that case — in particular § 522, which deals with property that may be exempted from property of the bankruptcy estate. The Court stated that “[t]he Code’s meticulous — not to say mind-numbingly detailed — enumeration of exemptions and exceptions to those exemptions confirms that courts are not authorized to create additional exceptions.”[7]

Similarly, § 362(c)(3) and (4) set out the specific and very detailed procedures that are required when a debtor has had a previous case dismissed within the year. The plain language of § 362(c)(3) necessitates both a motion and a hearing prior to the expiration of 30 days from the filing of the later case. The plain language of § 362(c)(4) requires a finding of “good faith” where there was more than one bankruptcy case dismissed within a year. Therefore, the Siegel decision strongly suggests that bankruptcy courts do not have the authority to use equitable powers to stretch the limits of the specific statutory provisions in § 362(c)(3)-(4).

In the short period of time since the Siegel decision, courts have seemingly backed away from asserting any sort of exception to the statutory provisions dealing with the automatic stay as it relates to repetitive filers. Based on personal experience, courts seem less willing to allow hearings on motions to extend the automatic stay to take place outside of 30 days from the filing.

I have witnessed a case since the Siegel decision where a hearing on a timely filed motion to extend the automatic stay was reset by the court for a later date due to the unavailability of the assigned judge. At the hearing, which took place outside of 30 days, the court denied the motion to extend and indicated that debtor’s counsel should have filed an emergency petition to have the case heard earlier by a replacement judge. In light of Siegel, therefore, the trend is for courts to abstain from using their equitable powers and to strictly enforce the statutory provisions with respect to the automatic stay and repetitive filings.