Twelve years ago, retired Bankruptcy Judge A. Thomas Small of Raleigh, N.C., said that Section 362(c)(3)(A) “stands out” among the “head-scratching opportunities” found in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA. In re Paschal, 337 B.R. 274, 277 (Bankr. E.D.N.C. 2006).
For someone whose chapter 7, 11 or 13 case was dismissed within a year of a new filing, Section 362(c)(3)(A) calls for the automatic stay to terminate in 30 days “with respect to any action taken with respect to a debt or property securing such debt . . . with respect to the debtor.”
At a hearing that must be held within the 30-day period on motion by the debtor or a party in interest, the bankruptcy court may continue the stay “as to any or all creditors” upon a showing that the new case was filed “in good faith as to the creditors to be stayed.”
There are at least three interpretations of Section 362(c)(3)(A), which was designed to some greater or lesser degree (depending on your interpretation of the statute) to punish a repeat-filing debtor, and maybe also to punish the debtor’s innocent creditors (intentionally or not).
According to a July 20 opinion by Bankruptcy Judge Colleen A. Brown of Burlington, Vt., the majority invoke what they contend is the plain meaning of Section 362(c)(3)(A) to conclude that the stay terminates only as to property of the debtor but not with respect to property of the estate.
In the case before Judge Brown, the third filing came within one year of dismissal of the second. Before the filing of the third petition, a mortgagee had initiated foreclosure. Had Judge Brown followed the majority, the automatic stay precluding foreclosure would persist because the home was property of the estate.
Judge Brown said that the majority’s interpretation “would have scant practical effect in deterring repeat filings.”
The minority, according to Judge Brown, believe that the stay automatically terminates in its entirety as to the repeat-filing debtor, the debtor’s property and the property of the estate, but not as to the debtor’s spouse in a joint case if the spouse is not a repeat filer.
Judge Brown cited Bankruptcy Judge Robert E. Grossman of Central Islip, N.Y., who found “an inherent flaw in both the majority and minority reasoning.” Focusing on different parts of the statute, Judge Grossman terminated the stay as to the debtor, property of the debtor and property of the estate, but only if the creditor had begun judicial proceedings before bankruptcy. To read ABI’s discussion of Judge Grossman’s opinion, click here.
Judge Brown had taken sides with the majority in an opinion she had written less than two years after the adoption of BAPCPA. Nonetheless, she was persuaded by commentators and later decisions to change her approach.
To abandon her earlier interpretation of Section 362(c)(2)(A), Judge Brown analyzed the four Supreme Court decisions interpreting BAPCPA. She also considered the concept of stare decisis.
Setting aside her earlier ruling, Judge Brown now joins the minority because she believes that terminating the stay as to the debtor, the debtor’s property and property of the estate “is consistent with congressional intent . . . because it meaningfully penalizes a debtor who files multiple bankruptcy cases . . . and fails to show a good faith basis for doing so.”
Judge Brown also declined to follow Judge Grossman because his decision, in her view, “does not align as clearly with congressional purpose as the minority approach.”