Two Time Repeat Ch. 13 Filer Can’t Halt Foreclosure on Property

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Diane Davis

Dec. 9 — New York Liens, LLC RAI Custodian, a secured creditor that holds a tax lien against a debtor’s property for unpaid general and school taxes, can move forward to collect its debt because the automatic stay in the debtor’s bankruptcy case has ended ( In re Bender , 2016 BL 405522, Bankr. E.D.N.Y., No. 816-73280-reg, 12/6/16 ).

Judge Robert E. Grossman of the U.S. Bankruptcy Court for the Eastern District of New York Dec. 6 ruled in favor of the creditor and determined that the automatic stay terminated 30 days after the debtor’s second bankruptcy filing by operation of Bankruptcy Code Section 362(c)(3)(A).

That provision isn’t clear, and there are majority and minority positions on the issue. The bankruptcy court’s decision is interesting because it found “inherent flaws in both the majority and minority’s reasoning and holdings.”

Section 362(c)(3) “limits the duration of the automatic stay in a Chapter 7, 11, or 13 case filed by an individual debtor who has had one bankruptcy case dismissed within the one-year period preceding the date the later petition is filed,” according to Bloomberg Law: Bankruptcy Treatise, pt. 1, ch. 45 (D. Michael Lynn et al. eds., 2016). "[I]f a debtor files a bankruptcy case within a year after dismissal of a prior case, the automatic stay expires on the 30th day after the later case is filed, unless extended,” the Treatise states.

“The provision was designed to combat the acts of ‘serial filers,’ who file petitions to stop foreclosure, without reasonable prospects of financial rehabilitation,” according to the Treatise.

Debtor Tracey Bender urged the court to adopt the reasoning of the majority that the automatic stay terminates on the 30th day after the filing of the petition, but only “with respect to the debtor” and the debtor’s property. In the minority view, the stay terminates in its entirety with respect to the debtor, the debtor’s property and estate property, upon expiration of the 30 days, the court said.

The bankruptcy court took a different approach and focused on specific actions with respect to specific property, not the broader categories of property of the estate or property of the debtor. Thus, the “stay is lifted ‘with respect to a debt or property securing such debt’ and with respect to leases — regardless of whether the property or the lease is property of the estate or property of the debtor,” the court said. Limiting the effect of Section 362(c)(3)(A) to the debtor or property of the debtor would limit its effectiveness and not support congressional intent to protect the secured creditor or lessor seeking to continue judicial, administrative or other proceedings commenced prepetition, the court said.

A “two time repeat filer” can’t gain protection from the automatic stay, the court said, but can ask the court to impose the stay by demonstrating that the filing of the second case was made “in good faith as to the creditors to be stayed.” The debtor must overcome a presumption that the second case wasn’t filed in good faith, the court said.

The court agreed with In re Paschal, 337 B.R. 274 (Bankr. E.D.N.C. 2006), that under Section 362(c)(3), the Section 362(a) stay is “only terminated as to the continuation of judicial, administrative or other proceedings commenced prior to the bankruptcy filing.”

Richard F. Artura, Phillips, Artura & Cox, Lindenhurst, N.Y.; Adam C Gomerman, Huntington Station, N.Y., represented debtor Tracey E. Bender, aka Tracey B. Vitagliano.

Chapter 13 trustee Michael J. Macco, Islandia, N.Y.

To contact the reporter on this story: Diane Davis in Washington, D.C. at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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