In re Thu Thi Dao

• Decision Date: 11 May 2020
• Docket Number: Dkt. Control No. DNL-2,Case No. 20-20742-C-7
• Citation: 616 B.R. 103
• Parties: IN RE: THU THI DAO, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of California

616 B.R. 103

IN RE: THU THI DAO, Debtor.

Case No. 20-20742-C-7
Dkt. Control No. DNL-2

United States Bankruptcy Court, E.D. California.

Signed May 11, 2020

616 B.R. 104

J. Russell Cunningham, Sacramento, CA, for Trustee.

OPINION REGARDING STATUS OF AUTOMATIC STAY

CHRISTOPHER M. KLEIN, Bankruptcy Judge:

Bankruptcy Code provisions that apply in chapters 7, 11, and 13, should be interpreted to avoid dysfunction in all applicable chapters. That precept has been neglected in chapter 13 decisions holding that the 11 U.S.C. § 362(c)(3) 30-day automatic stay termination "with respect to the debtor" who files serial cases also, by inference, extends to "property of the estate." This needless inference works havoc in chapter 7.

This is no minor matter because stripping the estate of stay protection contradicts the central chapter 7 policy of maximum and equitable distribution for creditors, for which the § 362(a) stay of acts against property of the estate is a key tool.

Much ink has been spilled in chapter 13 cases, without attending to chapter 7, over the question whether § 362(c)(3) 30-day stay termination inferentially strips the automatic stay from property of the estate. The circuits are divided. The majority (50+ cases), now led by the Fifth Circuit, says the stay does not terminate with respect to property of the estate. E.g., Rose v. Select Portfolio Serv'g, Inc., 945 F.3d 226 (5th Cir. 2019), petition for cert. filed, (U.S. Feb. 20, 2020)(No. 19-1035). The minority (20+ cases), led by the First Circuit, says the stay ceases to protect property of the estate. E.g., Smith v. Me. Bur. of Rev. Servs. (In re Smith), 910 F.3d 576 (1st Cir. 2018).

Although the Ninth Circuit has not ruled, its Bankruptcy Appellate Panel has sided with the minority. Reswick v. Reswick (In re Reswick), 446 B.R. 362 (9th Cir. BAP 2011).

The chapter 7 trustee, pursuant to the personal property provisions of 11 U.S.C. § 362(h)(2), and fearing Reswick, asks this court to assure the automatic stay continues unabated. He believes unscheduled assets exist that need protection.

This court is granting the § 362(h)(2) motion so as to preserve the automatic stay with respect personal property of the estate of the individual debtor and denying it as unnecessary as to real property as § 362(c)(3) does not end its stay protection.

The factual setting enables contrasts among the chapters to which § 362(c)(3) applies and between § 362(c)(3) and § 362(h), revealing that § 362(c)(3) does not modify or affect § 362(c)(1).

616 B.R. 105

Facts

The self-represented debtor filed chapter 7 case No. 20-20166-A-7 on January 13, 2020, which case was dismissed on January 31, 2020, for failure timely to file schedules.

The debtor filed this case on February 10, 2020. Some of the required schedules and statements have been filed, but not the Statement of Intention required by § 521(a)(2).

The manner in which documents have been prepared invites questions about whether there has been full, candid, and complete disclosure of all of the debtor's financial affairs. Moreover, there is no clear delineation among real and personal property.

The trustee has identified potential interests in properties associated with the debtor's name that do not appear to have been included on the schedules.

The trustee filed on March 11, 2020, the "Trustee's Motion to Extend the Automatic Stay as to All Creditors and Order [Debtor] to Deliver Collateral to the Trustee" under § 362(h)(2), asserting that there is personal and real property of the estate that is of consequential value or benefit to the estate that must be delivered to the trustee.

Although § 362(h)(1) stay termination applies only to "personal property of the estate" upon failure to file a timely statement of intention within the 30 days specified by § 521(a)(2)(A), the trustee, by also including real property in the motion, was worried that Reswick could terminate the stay regarding real property.

In the procedural posture of the case, the allegations regarding unscheduled assets are accepted as true.

Jurisdiction

Subject-matter jurisdiction is based on 28 U.S.C. § 1334(a). A trustee's motion to preserve the automatic stay concerns estate administration and is a core proceeding that a bankruptcy judge may hear and determine. 28 U.S.C. § 157(b)(2)(A).

Analysis

Analysis begins with the § 362(c)(3) controversy, notes the dysfunction resulting in chapter 7 from stay termination for property of the estate, contrasts § 362(c)(3) with § 362(h), and looks through the prism of an exemplar scenario.

I

It is axiomatic that the automatic stay protects multiple interests. At a minimum there is the interest of the estate and the interest of the debtor. Property may be simultaneously property of the estate and property of the debtor. Cf. Schwab v. Reilly, 560 U.S. 770, 782-85, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010) (interest of estate and debtor in exempt property). Thus, in stay relief matters, courts commonly address those interests separately and may grant relief as to one or the other or both.

II

The controversy that has arisen predominately in chapter 13 cases, and usually without reference to chapter 7, is whether the phrase "shall terminate with respect to the debtor" in § 362(c)(3)(A) should be construed implicitly to extend to the "estate," hence to "property of the estate," even though neither "estate" nor "property of the estate" appears in § 362(c)(3) :

(3) if a single or joint case is filed by or against a debtor who is an individual in a case under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was dismissed, other than a

616 B.R. 106

case refiled under a chapter other than chapter 7 after dismissal under section 707(b) --

(A) the 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 case;

11 U.S.C. § 362(c)(3)(A).

The majority says § 362(c)(3) is not ambiguous and that extending stay termination to the estate and property of the estate is a bridge too far that offends "plain language" that threatens to read § 362(c)(1) out of the statute. The minority finds ambiguity and reasons that inferring such an extension is consistent with the Congressional purpose of thwarting bad-faith manipulations of bankruptcy.

It is puzzling that the debaters, particularly the minority, ignore the chapter 7 implications of their chapter 13 rulings regarding § 362(c)(3). From the chapter 7 perspective, inferentially extending stay termination to property of the estate amounts to throwing the baby out with the bath water.

A

Anomalies emerge from reading the competing chapter 13 decisions.

First, while paying lip service to strictures to attend to the entire statutory text and the broader context of the statute, chapter 13 tunnel vision manifests itself by way of disregard of how § 362(c)(3) applies in chapter 7.

Second, when focusing on subsection (A), the decisions disregard the contextual implications of subsections (B) and (C) and, in particular, disregard implications of those subsections for chapter 7 trustees.

Third, there is no consideration of the contrasting provisions of § 362(h) terminating the stay for certain personal "property of the estate" as to which Congress was explicit in the same Act of Congress that created § 362(c)(3).

Nor is there reasoned explanation of how § 362(c)(3) meshes with the § 362(c)(1) property of the estate indefinite duration.

B

Exacerbating the analytical flaws is a distortion created by the fact that chapters 11 and 13 feature debtor in possession provisions that do not exist in chapter 7. 11 U.S.C. §§ 1115(b) & 1306(b).

If the purpose of Congress was to thwart manipulative debtors, then it is easy to succumb to the temptation also to thwart their management of property of the estate.

But, what may seem a benign check on shifty chapter 13 debtors turns malignant in chapter 7 where trustees, not debtors, always control property of the estate and have a duty to maximize its value. 11 U.S.C. § 704(a)(1).

C

Any convincing analysis of the effect of § 362(c)(3) on property of the estate, in addition to overcoming its contradiction of § 362(c)(1), must take into account how § 362(c)(3) applies in chapter 7 cases where debtors never are in possession of property of the estate.

Convincing analysis of § 362(c)(3) would also explain why Congress chose not to use in § 362(c)(3) the language it used in the same Act of Congress in the parallel provision at § 362(h) expressly terminating the stay protecting secured personal property of the estate in specified circumstances in a manner that meshed perfectly with § 362(c)(1) : "the stay provided by subsection (a) is terminated with respect to personal

616 B.R. 107

property of the estate or of the debtor securing in whole or in part a claim ... and such personal property shall no longer be property of the estate." 11 U.S.C. § 362(h)(1) (emphasis supplied).

Similarly, convincing analysis must explain how § 362(c)(3)(C) functions for a chapter 7 trustee, who, if property of the estate loses stay protection per § 362(c)(3)(A), would be subjected to an impossibly short deadline to prove by "clear and convincing evidence" that the chapter 7 case was filed in good faith even though chapter 7 does not have a good faith filing requirement.¹

A review of how § 362(c)(3) would apply in chapter 7 exposes the absurdity of extending § 362(c)(3) to property of the estate.

Nor is the inclusion of chapter 7 in § 362(c)(3) a sideshow; rather, chapter 7, which comprises 60 percent of all bankruptcy filings, is the main event. It is the chapter 13 decisions that amount to tail wagging dog.²

III

The background behind § 362(c)(3) was the abuse perceived in the stratagem of some consumer debtors using repetitive filings of bankruptcy cases to exploit the automatic stay as a delay tactic invoked on the...