Monday, September 22, 2008

Two Prior Dismissed Cases Within 1 Year Really DOES Mean No Automatic Stay for Third Case Under § 362(c)(4)(A)(i), Says 9th Circuit BAP

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

Nelson v. George Wong Pension Trust (In re Nelson)
9th Circuit BAP Nos. CC-08-1101-PaPeK, CC-08-1103-PaPeK, CC-08-1104-PaPeK (related appeals)
June 26, 2008, PUBLISHED opinion

The 9th Circuit Bankruptcy Appellate Panel held that there is no ambiguity under BAPCPA's § 362(c)(4)(A)(i) "such that the automatic stay is not automatically in effect upon the filing of a third case by individual debtors who have been debtors in two prior cases within the previous year."

The language of the statutes seems on its face to be unambiguous:

"[I]f a . . . case is filed by or against a debtor who is an individual under this title, and if 2 or more . . . cases of the debtor were pending within the previous year but were dismissed , . . . the stay under subsection (a) shall not go into effect upon the filing of the later case . . . ."

Debtors had filed a pro se Chapter 13 case, which was dismissed a few weeks later because they failed to show that they had attended pre-petition credit counseling. After a mortgage creditor recorded a foreclosure notice on their residence, the debtors filed a second Chapter 13 case, now represented by an attorney. But after four proposed plans, that case too was dismissed, three days before the scheduled foreclosure sale. They filed their third Chapter 13 case, pro se again (retaining their prior attorney after their case was filed). The creditor proceeded with the foreclosure sale, purchased the residence at the sale and filed an unlawful detainer action against the debtors seeking to gain possession of the property. Debtors filed an answer in the state court action and an adversary proceeding in the bankruptcy court to set aside the foreclosure sale as being in violation of the automatic stay.

Debtors' arguments went to BAPCPA's placement of § 362(c)(4)(A)(i) in the Code not its verbiage. Since this new provision was not put into subsection (b) of § 362, which contains the long list of exceptions to the stay, debtors argued that some sort of stay was still in effect at the filing of their third case. Their position was that while the stay did not operate at the moment of filing as to property of the DEBTORS, it did as to property of the ESTATE, and the residence was property of the estate at the time of the foreclosure sale (the day after the 3rd case was filed) and thus the foreclosure was stayed.

The BAP's response was that the provision's placement outside of subsection (b) was sensible because § 362(c)(4)(A) contained a separate enforcement mechanism (found at § 362(c)(4)(ii), allowing a party in interest to get a court order confirming the absence of a stay), thus inappropriate for placement in (b). And the BAP pointed out that debtors could provide no case law in support of their position, whereas many courts, albeit without detailed statutory analysis, had ruled that no stay arises "where the factual predicate of § 362(c)(4)(A)(i) is satisfied." Finally, although the court acknowledged that statutory references to the automatic stay do at times refer only to property of the estate or to property of debtors, Congress made no such distinction here. Instead, § 362(c)(4)(A)(i) is not ambiguous, and by its plain reading the automatic stay does not go into effect at the time of an individual's 3rd bankruptcy case filing within one year.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

© 2008 Bankruptcy Litigation Support for Attorneys