In re Daniel

• Decision Date: 28 April 2009
• Docket Number: No. 08 B 27165.,08 B 27165.
• Citation: 404 B.R. 318
• Parties: In re Thaddous R. DANIEL, Sr., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

404 B.R. 318

In re Thaddous R. DANIEL, Sr., Debtor.

No. 08 B 27165.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

April 28, 2009.

Janna L. Quarless, Robert J. Semrad & Associates, Chicago, IL, for Debtors.

Peter C. Bastianen, Codilis & Associates, Chicago, IL, for Deutsche Bank.

MEMORANDUM OF DECISION

EUGENE R. WEDOFF, Bankruptcy Judge.

This Chapter 7 case is before the court on the motion of a creditor, Deutsche Bank National Trust Company to confirm termination of the automatic stay affecting its collateral, the home of the debtor, Thaddous Daniel. The motion is based on Daniel's having a previous Chapter 13 case that was dismissed during the year before he filed the current case, triggering termination of the automatic stay under § 362(c)(3) of the Bankruptcy Code (Title 11, U.S.C.). Daniel has objected to the motion, arguing that § 362(c)(3) terminates the automatic stay only as to himself personally and whatever property he may own that is not property of his bankruptcy estate, but not as to property—such as his home—that is included in the bankruptcy estate.

As discussed below, most reported decisions support Daniel's argument, but § 362(c)(3) is better interpreted as imposing no limitation of the sort Daniel proposes. Termination of the stay under § 362(c)(3) applies to acts affecting estate property as well as other actions. Accordingly, the bank's motion will be granted.

Jurisdiction

Under 28 U.S.C. § 1334(a), the federal district courts have "original and exclusive jurisdiction" of all cases under the Bankruptcy Code, but 28 U.S.C. § 157(a) allows them to refer these cases to the bankruptcy judges for their districts. The District Court for the Northern District of Illinois has made such a reference of its bankruptcy cases. N.D. Ill. Internal Operating Procedure 15(a). Pursuant to this reference, a bankruptcy judge has jurisdiction under 28 U.S.C. § 157(b)(1) to "hear and determine ... all core proceedings arising under title 11, or arising in a case under title 11." A proceeding regarding the termination of the automatic stay is a core proceeding. 28 U.S.C. § 157(b)(2)(G).

Findings of Fact

The relevant facts are not in dispute. On January 27, 2006, Deutsche Bank made a loan to Thaddous Daniel secured by a mortgage on his home. On November 7, 2007, the bank filed a state court complaint to foreclose the mortgage. Three days later, Daniel filed a Chapter 13 case, No. 07 B 21126. After ten months, on September 15, 2008, the bankruptcy was dismissed on the bank's motion, because Daniel had not made the current mortgage payments that his plan required.

Less than a month after the dismissal, on October 9, 2008, Daniel filed the current case, No. 08 B 27165, again under Chapter 13.¹ Because the case was filed within a year of the first case's dismissal, § 362(c)(3) of the Bankruptcy Code applied, terminating the automatic stay unless the court, on motion of a party in interest and after a hearing completed during the first thirty days that the case was pending, entered an order extending the stay. Daniel moved to extend the automatic stay, but his motion was denied on November 6, 2008, because he failed to give proper notice. No new motion to extend the stay was filed, and the thirty-day period following the filing of the case expired on November 9, 2008. On December 2, 2008, the bank filed the pending motion, authorized by § 362(j), seeking a court order that would confirm termination of the automatic stay under § 362(c)(3) and so allow the bank to pursue its foreclosure action. Daniel objected to this motion, and the parties have briefed the legal issue that it raises.

Conclusions of Law

Section 362(c) of the Bankruptcy Code governs termination of the automatic stay imposed by § 362(a). An additional provision—paragraph (3)—was added to § 362(c) by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), to provide for termination of the automatic stay in certain situations of successive bankruptcy filings. The new provision is lengthy (over 400 words) and not clearly drafted. See In re Curry, 362 B.R. 394, 397 (Bankr.N.D.Ill.2007) (collecting authorities discussing difficulties in interpreting paragraph (c)(3)). It is possible, however, to set out a four-part outline of the paragraph's operation without controversy:

First, an introduction defines the cases to which paragraph (3) applies:

• any case of an individual debtor in Chapter 7,11, or 13,

• as to whom "a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed," • but not if the case was "refiled under a chapter other than chapter 7 after dismissal under section 707(b)."

Second, for any case within this scope of coverage, subparagraph (A) provides for termination of the stay thirty days after the case was filed, using the phrase "with respect to" four times: "[T]he stay under subsection (a) with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case."

Third, subparagraph (B) provides that after notice and "a hearing completed before the expiration of the 30-day period," a party in interest may obtain a court order extending the stay on a showing that "the filing of the later case is in good faith as to the creditors to be stayed."

Fourth, subparagraph (C) creates a presumption that a case was not filed in good faith if any of a set of defined circumstances exist, and it requires clear and convincing evidence to rebut the presumption.

There is no question that the current case is subject to § 362(c)(3). Thaddous Daniel was an individual in a case under Chapter 13 that was dismissed within a year of the date the current case was filed. Likewise, there is no question regarding any extension of the stay. Daniel's only motion to extend the stay was denied, and the thirty-day period for granting any new motion has expired. Rather, the dispute between Daniel and the bank involves the scope of the stay termination that both parties acknowledge has taken place. Specifically, the issue is the extent of the stay termination "with respect to the debtor."

The bank's position is that terminating the stay "with respect to the debtor" allows the bank to take any action—including foreclosure of its mortgage on Daniel's home—that would otherwise have been prohibited by the stay. Daniel, on the other hand, reads "with respect to the debtor" as leaving the stay in effect as to all property of his estate, including his home. This question of statutory interpretation has been addressed in a number of published decisions, most of which support Daniel.² The better reading of § 362(c)(3), however, allows the bank to proceed with its foreclosure action.

A. Read in context, termination of the stay "with respect to the debtor" is best understood as excluding jointly-filing spouses.

A fair assessment of the meaning of § 362(c)(3)(A)'s termination of the stay "with respect to the debtor" should begin by recognizing that the phrase can only be understood in context. Dictionary definitions of the terms are certainly no help in determining whether, or to what extent, "with respect to the debtor" is intended to limit stay termination. However, there are at least four different interpretations of stay termination "with respect to the debtor" that can be supported—and challenged—with contextual arguments. These interpretations are discussed below, together with the statutory context they implicate, in order of increasing plausibility.

1. An "all-property" exclusion: distinguishing between actions against the debtor personally and actions against any property.

The least plausible interpretation of "with respect to the debtor" would read the phrase as though it said "with respect to the debtor personally," making stay termination effective only as to in personam collection activity and excluding from the termination any in rem collection activity. This "all-property" exclusion from termination of the automatic stay under § 362(c) would allow a creditor to make collection calls and obtain a judgment against the debtor personally but it would not allow enforcement of the judgment, since all property available for that purpose would remain subject to the stay.

Contextual support for the all-property exclusion comes from the structure of the automatic stay itself. As prescribed in § 362(a), the automatic stay applies to three kinds of collection activity:

(1) activity directed against "the debtor" personally, such as "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor" (§ 362(a)(1));

(2) activity directed against property of the debtor's bankruptcy estate, such as "any act to obtain possession of property of the estate" and "any act to create, perfect or enforce any lien against property of the estate" (§ 362(a)(3) and (4));³ and

(3) activity directed against "property of the debtor," such as "any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case" (§ 362(a)(5)).

In the context of these three applications of the automatic stay, termination of the stay "with respect to the debtor" could be understood as applying only to the first, the stay of actions against "the debtor" personally, leaving the stay in effect as to acts against all property either within or outside of the debtor's estate.

However, there is an insurmountable difficulty with this interpretation: it makes § 362(c)(3)(A) self-contradictory. Stay termination in paragraph (3)(A) is "with respect to any action taken with respect to a debt or property securing such debt" (emphasis added). For this provision to be meaningful, termination of the stay must allow at least some collection...