Creating a split of circuits, the Fifth Circuit held that Section 362(c)(3)(A) only terminates the automatic stay as to the debtor and property of the debtor, but not as to property of the estate.
Section 362(c)(3)(A) is one of the most curiously drafted provisions in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA. It uses the phrase “with respect to” three times.
If an individual’s case under chapters 7, 11 or 13 has been dismissed within one year, the subsection provides that the automatic stay in Section 362(a) terminates 30 days after the most recent filing “with respect to any action taken with respect to a debt or property securing such debt . . . with respect to the debtor . . . .” [Emphasis added.]
In December 2018, the First Circuit adopted the position taken by the minority of lower courts in ruling that Section 362(c)(3)(A) terminates the automatic stay entirely, including property of the estate. Smith v. State of Maine Bureau of Revenue Services (In re Smith), 910 F.3d 576 (1st Cir. Dec. 12, 2018). To read ABI’s discussion of Smith, click here.
Finding the statute ambiguous, the First Circuit vacated the stay altogether, believing that Congress adopted BAPCPA to prevent abuses of the Bankruptcy Code.
In its per curiam opinion on December 10, the Fifth Circuit looked at the same language but decided that the “plain language” of the statute does not terminate the stay as to estate property.
The issue arose indirectly in the Fifth Circuit. The debtor had filed bankruptcy four times to forestall foreclosure of her home.
While her last bankruptcy was still pending, the debtor sued the mortgage lender in district court, contending that the Texas four-year statute of limitations on foreclosure had lapsed. Whether the statute had lapsed depended on how many days the statute had been tolled on account of bankruptcy.
The debtor argued that the automatic stay was in place with regard to the home for only 135 days. If that were so, the statute would have lapsed before the lender began foreclosure.
The lender took the view that the stay as to the house was effective for the entire 269-day duration of the debtor’s four bankruptcies. In other words, the lender contended that the automatic stay had not terminated 30 days after filing as to estate property. Concededly, the home was estate property.
On cross motions for summary judgment, the district judge ruled in favor of the lender, holding that the statute was tolled for all 269 days the debtor was in bankruptcy. The district judge followed opinions by bankruptcy courts in Texas and Louisiana that had adopted the majority view and ruled that Section 362(c)(3)(A) does not terminate the stay 30 days after filing as to estate property.
Based on “the plain language of the provision,” the Fifth Circuit affirmed, adopting the majority view and disagreeing with the First Circuit.
The Fifth Circuit said the statute was “clear.” The appeals court found “no mention of the bankruptcy estate” in the statutory language, which reads, “the stay under [Section 362(c)(3)(A)] . . . shall terminate with respect to the debtor.” [Emphasis in original.]
Referring to the next subsection, Section 362(c)(4)(A)(i), the appeals court said that Congress knows how to terminate the stay entirely when that is the objective.
Unlike the First Circuit, which was persuaded by policy arguments, the Fifth Circuit was “not convinced” that a more narrow interpretation “substantially harms creditors.” The appeals court noted that a mortgage lender can file a motion to modify the stay when “a debtor is abusing the automatic stay.”
The Fifth Circuit also said it was “not unsympathetic to other courts’ conclusions that a contrary interpretation may better serve the BAPCPA’s policy goals.” But when the statute “is clear, that is where our inquiry ends.”
The First Circuit opinion was 34 pages in length. The Fifth Circuit knocked off the issue in a mere nine pages. Although the Fifth Circuit opinion was unsigned, Chief Judge Priscilla R. Owen was on the panel.
Creating a split of circuits, the Fifth Circuit held that Section 362(c)(3)(A) only terminates the automatic stay as to the debtor and property of the debtor, but not as to property of the estate.
Section 362(c)(3)(A) is one of the most curiously drafted provisions in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA. It uses the phrase “with respect to” three times.
If an individual’s case under chapters 7, 11 or 13 has been dismissed within one year, the subsection provides that the automatic stay in Section 362(a) terminates 30 days after the most recent filing “with respect to any action taken with respect to a debt or property securing such debt . . . with respect to the debtor . . . .” [Emphasis added.]
In December 2018, the First Circuit adopted the position taken by the minority of lower courts in ruling that Section 362(c)(3)(A) terminates the automatic stay entirely, including property of the estate. Smith v. State of Maine Bureau of Revenue Services (In re Smith), 910 F.3d 576 (1st Cir. Dec. 12, 2018). To read ABI’s discussion of Smith, click here.
Finding the statute ambiguous, the First Circuit vacated the stay altogether, believing that Congress adopted BAPCPA to prevent abuses of the Bankruptcy Code.