On an issue where the circuits are split, a district judge sided with the majority by upholding Bankruptcy Judge Kent Lindquist of Hammond, Indiana, and ruling that the automatic stay does not terminate automatically as to property of the estate 30 days after a repeat filing.
The split arises from one of the most poorly written provisions of the Bankruptcy Code. Section 362(c)(3)(A) uses the phrase “with respect to” three times. It 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.]
The majority of courts, including the Fifth Circuit, hold that the stay ends automatically only with regard to the debtor’s property but not with respect to property of the estate. See Rose v. Select Portfolio Servicing Inc., 945 F.3d 226 (5th Cir. Dec. 10, 2019), cert. den. 141 S. Ct. 158 (June 29, 2020). To read ABI reports on Select Portfolio, click here and here.
The First Circuit is in the minority, having held that on a repeat filing within a year of a dismissal, the automatic stay ends entirely, including with regard to actions outside of the bankruptcy court against estate property. See 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.
If the minority view were to hold sway, an estate could be denuded of property in which the estate has an equity: If the debtor had an equity in collateral securing a debt, the lender could foreclose 30 days after a repeat filing and wipe out the estate’s equity. For these and other untoward examples resulting from the minority’s view, see In re Thu Thi Dao, 616 B.R. 103 (Bankr. E.D. Cal. May 11, 2020). To read ABI’s report, click here.
In the appeal before District Judge Damon R. Leichty of South Bend, the lender held a judgment of foreclosure against the debtor’s home. To bar eviction, the debtor refiled a chapter 13 petition six weeks after his first chapter 13 petition had been dismissed.
The Seventh Circuit has not taken sides on the split. To avoid the risk of contempt, the lender filed a motion under Section 362(j), asking the bankruptcy judge to rule on whether the automatic stay had ended as to estate property. Bankruptcy Judge Lindquist ruled against the lender, concluding that the stay only terminated with regard to the debtor’s property.
The lender appealed but lost in an opinion on March 19 by District Judge Leichty. If the lender appeals, the Seventh Circuit can take sides on the split.
Judge Leichty laid out the split and the theories on both sides. He aligned himself with the majority, in view of the “unambiguous” text of the statute. He said that a circuit split does not give rise to ambiguity, nor would he use legislative history to create ambiguity where the statute is clear on its face.
Judge Leichty said that Congress “knows full well the difference” between the debtor’s property and estate property. He cited numerous provisions in the Bankruptcy Code making the distinction.
By deleting the words “with respect to the debtor,” Judge Leichty said that Congress could have “written a statute that terminated the entire stay after 30 days, but in its wisdom Congress didn’t.” He saw his job as enforcing a constitutionally valid law, “not to rewrite it.”
Citing Section 362(c)(4)(A)(i), he said that “Congress knew how to eliminate the stay in its entirety when it desired to do so.”
Ruling that the stay did not end as to estate property, Judge Leichty said that the lender was not without a remedy. The lender, he said, could move to terminate the stay for lack of adequate protection.
On an issue where the circuits are split, a district judge sided with the majority by upholding Bankruptcy Judge Kent Lindquist of Hammond, Indiana, and ruling that the automatic stay does not terminate automatically as to property of the estate 30 days after a repeat filing.
The split arises from one of the most poorly written provisions of the Bankruptcy Code. Section 362(c)(3)(A) uses the phrase “with respect to” three times. It 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.]
The majority of courts, including the Fifth Circuit, hold that the stay ends automatically only with regard to the debtor’s property but not with respect to property of the estate. See Rose v. Select Portfolio Servicing Inc., 945 F.3d 226 (5th Cir. Dec. 10, 2019), cert. den. 141 S. Ct. 158 (June 29, 2020). To read ABI reports on Select Portfolio, click here and here.
The First Circuit is in the minority, having held that on a repeat filing within a year of a dismissal, the automatic stay ends entirely, including with regard to actions outside of the bankruptcy court against estate property. See 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.
If the minority view were to hold sway, an estate could be denuded of property in which the estate has an equity: If the debtor had an equity in collateral securing a debt, the lender could foreclose 30 days after a repeat filing and wipe out the estate’s equity. For these and other untoward examples resulting from the minority’s view, see In re Thu Thi Dao, 616 B.R. 103 (Bankr. E.D. Cal. May 11, 2020). To read ABI’s report, click here.
In the appeal before District Judge Damon R. Leichty of South Bend, the lender held a judgment of foreclosure against the debtor’s home. To bar eviction, the debtor refiled a chapter 13 petition six weeks after his first chapter 13 petition had been dismissed.