In re Madsen
| Decision Date | 27 April 2022 |
| Docket Number | Case No. 22-20157-E-13,Docket Control No. KL-1 |
| Parties | IN RE Nelson A. MADSEN and Sharon L. Burns, Debtors. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California |
Office of the U.S. Trustee, Sacramento, CA, Douglas H. Kraft, Esq., Gold River, CA, for Attorney(s) for the Debtor(s).
Tri Counties Bank ("Movant") has filed its Motion for the court to enter an order pursuant to 11 U.S.C. § 362(j) determinating that the automatic stay has been terminated pursuant to 11 U.S.C. § 362(c)(3)(A) with respect to the Debtor, for all property of the Bankruptcy Estate, and in its entirety in this Bankruptcy Case.1
As addressed in this Decision, the court does not find the plain language used by Congress in 11 U.S.C. § 362(c)(3) to be ambiguous as to the scope of the termination of the stay, and the requested relief is denied.2
On January 24, 2022, Debtor commenced the current Bankruptcy Case. Debtor had one prior bankruptcy case (21-22819) that was pending and dismissed (January 10, 2022) within one year of the commencement of the current Bankruptcy Case.
Congress addressed what it perceived as non-good faith repeat bankruptcy debtors as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), which included enacting 11 U.S.C. § 362(c)(3) and (c)(4). In 11 U.S.C. § 362(c)(3)(A) Congress provides for the termination of the automatic stay "with respect to the debtor" as follows [emphasis added]:
The plain language of this section states that the automatic stay with respect to a debt (obligation owed by a debtor) and any property securing the debt shall terminate, but only terminate with respect to the debtor after the expiration of the thirty (30) day period. No termination of the automatic stay, other than with respect to the debtor, is provided in 11 U.S.C. § 362(c)(3)(A).
11 U.S.C. § 362(a) provides a series of automatic stay provisions which give rights and protections to the debtor on the one hand, and the bankruptcy trustee, bankruptcy estate, and the interests of creditors with unsecured claims or junior lien secured claims3 on the other hand.4 The provision of 11 U.S.C. § 362(a) provide for specific and extensive statutory injunctive relief, stating (different emphasis added for "debtor" and "property of the estate"):
It is clear that Congress has created automatic stays which arise to benefit and protect several different entities: (1) the debtor and (2) the bankruptcy estate, trustee, and creditors with unsecured claims to be paid from the bankruptcy estate. In the plain language above, there is an automatic stay created in paragraph (4) to protect property of the bankruptcy estate from the creation, perfection, or enforcement of liens (which necessarily had to secure a pre-petition debt of the debtor or a post-petition debt secured by a lien authorized by the bankruptcy court). Then, in paragraph (5) there is an automatic stay to protect property of the debtor from the creation, perfection, or enforcement of a lien for a pre-petition debt. These paragraphs create two separate automatic stays protecting two different sets of property. If property of the Debtor was to include property of the bankruptcy estate, these provisions would be redundant of the other.
In 11 U.S.C. § 362(c)(3)(A), Congress recognizes that a debtor filing a second case may be improperly attempting to use a second bankruptcy case filed shortly after the dismissal of a prior case as a front for having an automatic stay to shield the debtor personally and not for any good faith prosecution of such debtor's bankruptcy rights and administration of property of the bankruptcy estate. However, Congress does not provide for such bad faith by the debtor to cause the "property of the bankruptcy estate baby" being thrown out with the "bad faith debtor bath water."
Movant provides one case citation (and no legal analysis) as the legal basis in its Memorandum of Points and Authorities in Support of Motion (Dckt. 35) for the proposition that Congress, stating in 11 U.S.C. § 362(c)(3)(A) that the automatic stay terminates with respect to the debtor , actually means that the automatic stay terminates with respect to the debtor and with respect to the bankruptcy estate and property of the bankruptcy estate (which is a separate legal entity from the Debtor). The one sole legal citation provided by Movant is Reswick v. Reswick (In re Reswick) , 446 B.R. 362, 368 (B.A.P. 9th 2011).
In Reswick the Bankruptcy Appellate Panel addressed what it found to be confusing language in 11 U.S.C. § 362(c)(3) – concluding that the minority view of interpreting this language to mean that the term "terminates with respect to the debtor" actually means that it "terminates the automatic stay in its entirety" in the bankruptcy case, resulting in there being no automatic stay for property of the bankruptcy estate. At the core of the Bankruptcy Appellate Panel concluding that there was not "plain language" to be read in 11 U.S.C. § 362(c)(3)(A), the panel in Reswick stated:
If the phrase "with respect to the debtor" meant that the automatic stay only terminated as to the debtor personally and as to non-estate property, the opening clause of section 362(c)(3)(A) would be surplusage. There would be no reason for section 362(c)(3)(A) to reference actions "with respect to a debtor or property securing debt or with respect to any lease" if the interpretation of the Debtor and the majority were correct.
Reswick v. Reswick (In re Reswick) , 446 B.R. 362, 368 (B.A.P. 9th 2011).
The Bankruptcy Appellate Panel's conclusion that the reference to "property" must refer to property of the bankruptcy estate, appears to assume that all property of a debtor or "property securing a debt of a debtor" must be and can only be "property of the bankruptcy estate."
It appears that the Bankruptcy Appellate Panel in Reswick did not consider that a debtor, who was protected by the automatic stay, might have an obligation that was secured by property owned by other persons (father, mother, business associate, or friend). And that for such obligation, the creditor could be stayed by the statutory injunction granted for the debtor in 11 U.S.C. § 362(a)(6) of any "act to collect, assess, or recover a claim against the debtor that arose before the commencement of the bankruptcy case."
Additionally, it does not appear that the Panel considered that there could be property of a debtor that is claimed as exempt which is initially included in the bankruptcy estate, with no value in the property after the liens on the property and exemption claimed by the debtor. In such situations, it is common for a trustee to quickly abandon such property back to the debtor during the pendency of the bankruptcy case because such property is burdensome (cost of insurance and other expenses to preserve the value of the property as property of the bankruptcy estate, or subject the bankruptcy estate to significant tax consequences if a foreclosure sale occurs while it is property of the bankruptcy estate) or of inconsequential value to the bankruptcy estate. 11 U.S.C. § 554(a). When abandoned to the debtor, the termination of the stay with respect to the debtor would allow the creditor to proceed against such property.
Finally, as discussed below, there is a wide range of property that while owned by the debtor as of the commencement of the case, never becomes property of the bankruptcy estate (and thus not protected by the automatic stay as it applies to property of the bankruptcy estate). These exclusions are found in 11 U.S.C. § 541(b)(1)-(10) and (d). For such property, the termination of the stay as to the debtor would be effective for a creditor having a lien to enforce against such property.
The court's analysis of this contention for interpreting the plain language of 11 U.S.C. § 362(c)(3)(A) begins with the basic rules of statutory construction as enunciated by the United States Supreme Court.
To construe what Congress has...
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