Approximately five months after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), practitioners are still sorting through the amendments. Aside from the consumer credit counseling certification and the means-testing requirements, the new limitations placed on the automatic stay represent one of the most immediate impacts of the new law.

The automatic stay is one of the most well-known and fundamental debtor protections provided by the Code. It is axiomatic that the filing of a bankruptcy petition stays creditor action to collect claims against the debtor. The scope of the stay is extremely broad, encompassing actions against the debtor, the debtor's property and property of the estate. Historically, the stay has provided the debtor with "breathing space" from creditors' collection efforts. In addition, the stay provides the debtor with time to propose a repayment or reorganization plan. The automatic stay also protects creditors by permitting the trustee to inventory the estate and provide for an orderly liquidation.¹

The New Rules

However, the automatic stay is not so "automatic" anymore. BAPCPA permits additional manner of collection actions by taxing authorities and former spouses, for example. In addition, Congress has provided for the early expiration of the automatic stay or dramatically limited its scope in a number of circumstances. Debtor's counsel may be required to consider action at the inception of a bankruptcy case to ensure that the stay does not expire by operation of law. If the debtor had a prior bankruptcy case dismissed within one year, or a prior bankruptcy court found that the debtor did certain "bad things" in a recent case, the stay may be limited in duration or not go into effect at all. Further, the stay may expire without any action by a secured creditor if the debtor fails to file a statement of intention in a chapter 7 case or fails to timely comply with his or her stated intentions for the secured creditor's collateral. Additionally, the stay may cease to apply after 30 days to residential eviction actions when a landlord obtains a pre-petition order of possession for the property. It may only be effective for a few weeks where the landlord certifies that the tenant has endangered residential property or illegal drug use has occurred on the property. This article attempts to outline the new scope of the automatic stay and briefly surveys the limited case law interpreting the new statute.

A governmental unit such as the IRS may now set off against an income tax refund based on pre-petition amounts owed to the governmental unit. In any case in which the setoff of an income tax refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of a tax liability, the amended statute permits a governmental unit to hold the refund pending the resolution of the action unless the taxing authority receives adequate protection of its secured claim. Congress has also modified the stay of tax court proceedings in cases involving individual debtors. A bankruptcy filing only stays the commencement or continuation of U.S. Tax Court proceedings for taxable periods ending before the date of the bankruptcy petition.²

Congress has further limited the impact of the stay to actions concerning "domestic support obligations." The automatic stay represents one of the many statutory provisions affected by amendments concerning "domestic support obligations." A "domestic support obligation" is an obligation to a spouse, former spouse or child "in the nature of alimony, maintenance or support" that is set forth in a separation agreement, divorce decree, property settlement agreement, court order or determination by a governmental unit in accordance with applicable nonbankruptcy law.3 Most significantly, Congress added an exception applicable in chapter 13 cases that permits "the withholding of income that is property of the bankruptcy estate or property of the debtor for payment of a domestic support obligation under a judicial or administrative order or statute."4

Congress further amended §362(b)(2) to permit a number of domestic support-obligation enforcement actions that are authorized under the Social Security Act or similar state laws:

• the withholding, suspension or restriction of a driver's license, a professional or occupational license, or a recreational license under state law,⁵
• the reporting of overdue support owed by a parent to any consumer reporting agency,⁶
• the interception of a tax refund,⁷ and
• the enforcement of medical obligations.⁸

In addition, Congress specifically excluded a number of types of domestic relations proceedings from the scope of the stay.9 The following actions are now excepted from the stay:

• establishment of paternity
• establishment or modification of an order for support
• child custody or visitation
• dissolution of a marriage, except to the extent that such an action seeks to determine the division of property that is property of the bankruptcy estate, and
• domestic violence.

Congress modified the stay to permit payroll deductions by employers for a debtor/employee's repayment of a loan taken against his or her pension plan pursuant to an agreement with the debtor.¹⁰ The exception applies to the repayment of a loan taken against the debtor's pension, profit sharing, stock bonus or other plan established under §401, 403, 408, 408A, 414, 451 or 501(c) of the Internal Revenue Code. Employers may also make payroll deductions to repay a loan against a thrift savings plan.

BAPCPA placed limits on the automatic stay for serial bankruptcy filers. However, this statute has drawn heavy criticism for the manner in which it was drafted.¹¹ Congress limited the duration of the automatic stay to 30 days in circumstances where an individual debtor filed a prior bankruptcy case that was dismissed within one year before the current bankruptcy filing.¹² The stay expires absent a motion by the debtor or another party in interest and a court order continuing the stay within the 30-day period.¹³ In cases where the stay may be limited to 30 days because of a prior bankruptcy filing, debtors' attorneys must be sensitive to the time constraints and procedural requirements for the filing of motions to extend the stay. Courts have denied motions to extend the stay where a debtor did not provide creditors with sufficient notice and an opportunity to respond in advance of a scheduled hearing within the 30-day period.¹⁴ Moreover, at least one judge has required that debtors file an affidavit in support of an extension of the 30-day stay detailing prior case numbers and providing an explanation as to why prior cases were dismissed.¹⁵

The stay does not go into effect at all if an individual debtor had two or more cases pending that were dismissed within the previous year.¹⁶ However, in such cases, the Code permits a debtor or a party in interest to file a motion for a stay within 30 days after the petition date.

In any case where the debtor or another party in interest seeks either the extension of the stay or the imposition of the stay, they bear the burden of demonstrating that the debtor filed the current case in good faith.¹⁷ Most courts have conducted a fact-intensive inquiry as to the facts and circumstances surrounding the filing of the bankruptcy petition, requiring a showing of both "objective" and "subjective" good faith.¹⁸

A presumption that a case has not been filed in good faith arises based on a number of factors. The debtor or party in interest must rebut the presumption that the case was not filed in good faith by clear and convincing evidence.¹⁹ A presumption that the case was not filed in good faith arises based on any of the following:

1. the pendency of two or more prior bankruptcy cases within the preceding year.
2. the dismissal of a prior case within the prior year based on the debtor's failure to:

(a) file or amend a bankruptcy petition or other documents as required by the Code or the court without substantial excuse;²⁰ or
(b) provide adequate protection as ordered by the court; or
(c) perform the terms of a plan confirmed by the court.

3. where there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under chapter 7, 11 or 13 or any other reason to conclude that the later case will be concluded in:

(a) a chapter 7 discharge, or
(b) in a case under chapter 11 or 13, with a confirmed plan that will be fully performed.

In addition, a case is presumed to be filed not in good faith as to a particular creditor if a motion for relief from stay was pending or was granted prior to the dismissal of the prior case.²¹

Notably, the presumption that a case has not been filed in good faith does not apply to the spouse of the serial bankruptcy filer.²² It does not preclude application of the co-debtor stay.²³ One court has held in the context of a chapter 13 case that the 30-day time limitation on the automatic stay only applies to the stay of any action to collect "debts" or an action regarding "property of the debtor," not to any action against "property of the estate."²⁴ The court held that the stay remains in place for the duration of the chapter 13 case, until the debtor receives a discharge or the case is dismissed.²⁵ Yet another court has held that the stay only terminates as to civil or administrative litigation that was pending against the debtor on the date of the bankruptcy, not generally as to all collection actions by creditors.²⁶ Furthermore, these limitations on the automatic stay do not apply to a debtor's filing of a chapter 13 or chapter 11 individual reorganization after the dismissal of a prior chapter 7 case as abusive under §707(b).

BAPCPA may prohibit the application of the stay with regard to a particular parcel of property for two years if a prior bankruptcy court found that the debtor engaged in conduct to delay, hinder and defraud a secured creditor. The impact of this amendment to the statute remains open to question because it only applies in a highly specific factual scenario. Furthermore, even if a bankruptcy court makes specific findings that would bring a case within the statute, the statute leaves open the possibility that the debtor may obtain relief from the judgment in a subsequent case.

In order for this exception to the automatic stay to apply in a subsequent case, a court must find that the filing of the petition was part of a scheme to delay, hinder and defraud a secured creditor with an interest in the debtor's real property. In addition, the court must find that this scheme also involved either—

• transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval, or
• multiple bankruptcy filings affecting such real property.²⁷

The statute requires that any local, state or federal filing office accept for filing such an order prohibiting the application of the automatic stay. If the order is recorded in compliance with applicable state law governing notices of interests or liens in real property, the order is binding in any other bankruptcy case purporting to affect the real property filed within two years after the date of the entry of the order.²⁸

Congress excepted from the stay actions by a secured creditor to foreclose on its collateral if the debtor has engaged in willful misconduct in a prior case under §109(g) or a bankruptcy court order prohibited a future bankruptcy filing. The stay does not apply if the debtor is ineligible to file a bankruptcy petition under §109(g). Moreover, the stay does not apply if the case was filed in violation of a bankruptcy court order in a prior case prohibiting the debtor from filing a bankruptcy case.²⁹ Section 109(g) prohibits a debtor from filing a bankruptcy case for 180 days if:

1. a court dismissed the debtor's prior case for willful failure to abide by orders of the court;
2. a court dismissed the debtor's prior case based on the debtor's willful failure to appear before the court in proper prosecution of the case; or
3. the debtor requested and obtained the voluntary dismissal of the prior bankruptcy case following a creditor's filing of a request for relief from the automatic stay.

It is unclear whether this provision will have much practical significance because courts typically do not make detailed findings when they dismiss a case that would dictate the application of §109(g) in a future bankruptcy case.

The automatic stay expires by operation of law in a chapter 7 case if the debtor fails to timely file a required statement of intention, or fails to timely comply with her statement of intention.³⁰ The debtor must file a statement of intention within 30 days after the petition date or before the date set for the first meeting of creditors, whichever is earlier.³¹ The debtor must comply with her statement of intention for the collateral within 30 days after the first date set for a meeting of creditors.³² The court may extend these time periods for cause.

The statute only applies in chapter 7 cases.³³ Furthermore, this provision does not apply if the debtor's statement of intention specifies her intention to reaffirm the debt on the original contract terms and the creditor refuses to agree to the reaffirmation of the debt on such terms.³⁴

The trustee may file a motion requesting a determination that the court continue the automatic stay, but the motion must be filed before the expiration of the applicable time periods set by §521(a)(2). The trustee must show that the personal property is of consequential value or benefit to the estate. If the court grants the trustee's motion, it must order appropriate adequate protection of the creditor's interest and require that the debtor deliver any collateral in the debtor's possession to the trustee. If the court denies the trustee's motion, the stay terminates upon the conclusion of the hearing on the motion.

The BAPCPA amendments also venture into the realm of consumer landlord/tenant law. Newly enacted §§362(b)(22) and 362(l) require the debtor to take affirmative action if a landlord has obtained a pre-petition judgment for possession of residential property. The automatic stay does not apply 30 days after the petition date unless the debtor timely complies with additional requirements imposed by the Code. As a preliminary matter, if a judgment for possession has been entered against the debtor, the debtor must state this in his or her bankruptcy petition and provide the name and address of the landlord.³⁵

In order to extend the 30-day breathing spell granted by the statute, the debtor must comply with Code certification requirements and deposit one month's rent with the clerk of the bankruptcy court upon the filing of the petition. On the petition date, the debtor must certify under penalty of perjury that, under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession.³⁶ In order to preclude the termination of the stay under §362(b)(22), the debtor must also file with the court and serve upon the lessor within the 30-day post-petition period a further certification stating under penalty of perjury that the debtor has cured the entire monetary default that gave rise to the judgment for possession.

If the landlord obtained a pre-petition order of possession and the debtor does not file one of the two required certifications or make the required rent deposit, the automatic stay terminates as to the eviction action 30 days after the filing of the bankruptcy petition. The landlord need not obtain relief from the stay to recover possession of the property.³⁷

The Code provides for an expedited hearing to decide any contested matters under the statute. If the landlord objects to any certification filed by the debtor, the court must hold a hearing to determine the merits of the certification filed by the debtor within 10 days after the filing and service of the objection.³⁸ If the court upholds the landlord's objection, the stay terminates immediately and the landlord need not seek relief from the stay to recover possession of the property.³⁹ If the court finds in favor of the debtor, the automatic stay continues to apply.

The BAPCPA amendments also provide a summary procedure that may permit lessors of residential property to evict a tenant based on the tenant's endangerment of the property or the illegal use of drugs on the property.⁴⁰ Whether the statute adds anything to the process already provided for a garden-variety motion for relief from stay remains to be seen. In order to invoke this provision, the landlord must certify under penalty of perjury that, during the preceding 30-day period, the debtor endangered the property or illegally used or allowed to be used a controlled substance on the property. The debtor has a 15-day period to object to the landlord's certification. If the debtor fails to object within 15 days, subsection 362(b)(23) applies and the automatic stay no longer prevents the landlord from recovering possession of the property. The landlord may proceed with an eviction action.⁴¹

If the debtor files an objection to the truth or legal sufficiency of the landlord's certification, the statute provides for an expedited hearing to determine the merits of the landlord's certification. The court must hold a hearing on the merits within 10 days after the filing and service of the debtor's objection to determine if the situation giving rise to the lessor's certification existed, and whether it has since been remedied.

The stay remains in place if the debtor can demonstrate to the satisfaction of the court that the situation giving rise to the lessor's certification either (1) did not exist or (2) has been remedied. If the court finds otherwise, the lessor may proceed with an eviction without obtaining relief from the stay.⁴²

Congress limited the damages available against a creditor who (a) has not been provided with proper notice under newly enacted §342, or (b) mistakenly believes that the stay has been terminated based on a debtor's failure to file or comply with a statement of intention in a chapter 7 case. Newly enacted §342(g)(2) provides that the court may not impose a monetary penalty for a creditor's violation of the automatic stay unless the creditor's conduct occurred after the creditor received "effective notice" under §342(g) of the bankruptcy petition. Section 342(g) requires that notice of the petition be given to a person or organizational subdivision of a creditor designated by the creditor to be responsible for receiving notices under the Code pursuant to reasonable procedures established by the creditor for delivery of such notices to that person or subdivision.

Similarly, §362(k)(2) precludes the imposition of punitive damages against a creditor that acts to repossess property based on a good-faith belief that the debtor failed to timely file a statement of intention or comply with a statement of intention. However, these statutes may not provide much comfort to creditors who are the subject of claims that they willfully violated the stay. The statutes only preclude the recovery of punitive damages. The creditor may still face the possibility of paying the debtor's actual damages, including attorneys' fees.

Finally, Congress has mandated an expedited process for the disposition of motions for relief from stay in consumer cases. In cases involving individual debtors, §362(e)(2) provides that the stay terminates 60 days after the filing of the motion, unless a final order is entered during that 60-day period. The stay does not terminate if the 60-day period is extended by agreement of all parties in interest or is extended by the court for a specific period of time that the court finds is required for good cause, as described in findings of the court.

---

Footnotes

1 See H.R. Rep. No. 95-595, 95th Cong., 2d Sess. 340, reprinted in 1978 U.S. Code Cong. & Admin. News 5963, 6296-301. See, also, Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 (6th Cir. 2000).

2 11 U.S.C. §523(a)(8).

3 11 U.S.C. §101(14A).

4 11 U.S.C. §362(b)(2)(C).

5 11 U.S.C. §362(b)(2)(D).

6 11 U.S.C. §362(b)(3)(E).

7 11 U.S.C. §362(b)(2)(K).

8 11 U.S.C. §362(b)(2)(G).

9 11 U.S.C. §362(b)(2)(A)(i)-(iv).

10 11 U.S.C. §362(b)(19).

11 See, e.g., In re Paschal, ___ B.R. ____, 2006, WL 258298 at *2 (Bankr. E.D.N.C. 2006). ("In an act in which head-scratching opportunities abound for both attorneys and judges alike, §362(c)(3)(A) stands out").

12 11 U.S.C. §362(c)(A).

13 11 U.S.C. §362(c)(3)(B).

14 In re Taylor, 334 B.R. 660 (Bankr. D. Minn. 2005) (denying motions to extend the stay where debtors did not comply with the requirements for providing notice and an opportunity to respond by creditors within the 30-day period); In re Toro-Arcila, 334 B.R. 224 (Bankr. S.D. Tex. 2005) (denying motion filed on the last day of the 30-day period because it prevented the court from completing a properly noticed hearing to continue the stay); In re McGhee, 336 B.R. 378 (Bankr. E.D. Tenn. 2005) (denying debtors' motion to extend the stay where they failed to provide 20 days' notice prior to a hearing as required by local rule); see, also, In re Collins, 334 B.R. 655 (Bankr. D. Minn. 2005) (motion to extend stay by repeat bankruptcy filers must be served on all creditors, not just the case trustee and the office of the U.S. Trustee).

15 In re McGhee, 336 B.R. 378 (Bankr. E.D. Tenn. 2005).

16 In re Parker, 336 B.R. 678 (Bankr. S.D.N.Y. 2006) (The court found that the automatic stay did not apply to the debtor/husband who filed his third bankruptcy within a year).

17 11 U.S.C. §362(c)(3)(B); 11 U.S.C. §362(c)(4)(B).

18 See, e.g., In re Mark, 336 B.R. 260, 265-66 (Bankr. D. Md. 2006).

19 Compare In re Mark, 336 B.R. 260 (Bankr. D. Md. 2006) (debtor, whose prior case was dismissed when he lost his sole source of income, established good faith; debtor had a steady source of income and proposed a plan providing for 100 percent repayment of creditors); In re Warneck, 336 B.R. 181 (Bankr. S.D.N.Y. 2006) (stating that "[w]here no presumption of bad faith arises, and where no party in interest objects, requests to extend the automatic stay should be liberally granted;" even though the debtors, who relied on Social Security for their income, filed two prior cases within the preceding two-year period, the court found that the debtors' circumstances had changed and that they were able to fund a plan based on affidavits and documentary evidence submitted to the court); In re Phillips, 336 B.R. 818 (Bankr. E.D. Okla. 2006) (the court found that the debtor, whose prior case was dismissed for failure to make plan payments, established her good faith by clear and convincing evidence where her failure to make plan payments in the prior case resulted from the loss of her job and a divorce and the debtor had regular income at the time of the hearing); In re Baldassaro, ___ B.R. ___ 2006, WL 459201 (Bankr. D. N.H. 2006) (held that debtor who failed to make payments in prior case because of illness established good faith by showing likelihood of making plan payments in view of improved health, the lack of any extravagant expenditures or "eve of bankruptcy" expenditures, and an absence of facts showing that he tried to manipulate the system); In re Charles, 334 B.R. 207 (Bankr. S.D. Tex. 2005) (court found that the equities warranted extending the stay where the debtor's debts arose primarily from the purchase of necessities, not from "eve of bankruptcy purchases," a proposed chapter 13 plan satisfied confirmation requirements, and the court found that the debtor was likely to perform under the plan); In re Galanis, 334 B.R. 685 (Bankr. D. Utah 2005) (finding that the debtors established their entitlement to an extension of the 30-day stay where their prior chapter 13 case was dismissed for failure to make payments under their plan, which apparently involved some degree of misfeasance by the debtors' attorney; debtors filed their chapter 13 case within 13 days after the prior case was dismissed in an apparently responsible effort to repay their debts, and they had a steady source of income to fund a plan; neither the chapter 13 trustee nor creditors objected); compare the Vehikite case (also at 334 B.R. 685) (finding that debtors met their burden of showing that case was filed in good faith where debtors' delay in re-filing chapter 13 case was occasioned by debtor/wife's need for medical care, most of the debts the debtors sought to discharge were unavoidable costs such as medical expenses, debtors had a steady stream of income which would enable them to fund a plan, and neither the trustee nor creditors objected to the extension); with In re Kurtzahn, ___ B.R. ___, 2006 WL 278571 (Bankr. D. Minn. 2006) (debtor, whose prior case was dismissed for her failure to make plan payments, failed to show that her financial circumstances had changed, failed to propose a feasible plan and had an eight-year track record of failing to pay the secured debt on her mobile home; the debtor's financial circumstances were unchanged, and the debtor's plan was unfeasible); In re Havner, 336 B.R. 98 (Bankr. M.D.N.C. 2006) (debtor did not establish good faith in circumstances where he failed to make payments under his prior confirmed plan, there was no substantial change in the debtor's financial circumstances and there was no reason to conclude that the present case would be concluded with a confirmed plan that was fully performed); In re Collins, 335 B.R. 646 (Bankr. S.D. Tex. 2005) (chapter 13 debtor failed to overcome presumption that case was not filed in good faith where debtor's financial circumstances had not changed and the debtor failed to demonstrate the feasibility of a chapter 13 plan); In re Montoya, 333 B.R. 449 (Bankr. D. Utah 2005) (debtor failed to demonstrate that a chapter 13 plan was feasible).

20 Mere inadvertence or negligence is not a substantial excuse unless the dismissal was caused by the negligence of the debtor's attorney, 11 U.S.C. §362(c)(3)(C); 11 U.S.C. §362(c)(4)(D)(II).

21 11 U.S.C. §362(c)(3)(C)(ii); 11 U.S.C. §362(c)(4)(ii).

22 In re Parker, 336 B.R. 678 (Bankr. W.D.N.Y. 2006).

23 11 U.S.C. §1301.

24 In re Johnson, 335 B.R. 805 (Bankr. W.D. Tenn. 2006).

25 Id.

26 In re Paschal, ____ B.R. ____, 2006 WL 258298 (E.D.N.C. 2006).

27 11 U.S.C. §362(d)(4).

28 11 U.S.C. §362(d)(4).

29 11 U.S.C. §362(b)(21).

30 In other words, the debtor must state that she intends to (1) surrender such personal property, (2) redeem such personal property pursuant to §722, (3) enter into a reaffirmation agreement as provided in §524(c) or (4) assume an unexpired lease pursuant to §365(p) if the trustee does not do so. See In re Craker, ___ B.R. ___, 2006 WL 343219 (Bankr. M.D.N.C.) (held that debtor who did not choose one of the statutory options lost the benefit of the automatic stay).

31 11 U.S.C. §521(1)(2)(A).

32 11 U.S.C. §521(a)(2)(B).

33 In re Schlitzer, 332 B.R. 856 (Bankr. W.D.N.Y. 2005) (court held that Code provision that mandated termination of the automatic stay for failure to file or comply with a statement of intention did not apply in chapter 13 cases).

34 If a court later finds that the creditor has violated the automatic stay based on an action taken in the good-faith belief that the stay does not apply because the debtor failed to file a required statement of intention, or failed to comply with his or her statement of intention as to specified collateral, damages are limited to "actual damages." 11 U.S.C. §362(k)(2).

35 11 U.S.C. §362(l)(5).

36 The clerk of the court is required to arrange for the prompt transmittal of the rent deposited to the lessor.

37 The Code requires the clerk of court to immediately serve upon the lessor and the debtor a certified copy of the docket indicating the absence of a filed certification and the applicability of the exception to the stay under §362(b)(22). See 11 U.S.C.§362(l)(4)(B).

38 11 U.S.C. §362(l)(3)(A).

39 The Code further requires that "the clerk of the court shall immediately serve upon the lessor and the debtor a certified copy of the court's order upholding the lessor's objection."

40 See 11 U.S.C. §§362(b)(23) and 362(m).

41 The clerk of the court is required to immediately serve upon the lessor and the debtor a certified copy of the docket indicating the debtor's failure to timely respond.

42 The clerk of the bankruptcy court is required to serve upon the lessor and the debtor a certified copy of the court's order upholding the lessor's certification.