In re Wade

• Decision Date: 06 June 2018
• Docket Number: CASE NO. 15BK01035
• Citation: 592 B.R. 672
• Parties: IN RE Harold and Lorraine WADE
• Court: U.S. Bankruptcy Court — Northern District of Illinois

592 B.R. 672

IN RE Harold and Lorraine WADE

CASE NO. 15BK01035

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

Signed June 6, 2018

Charles R. Bonini, Anthony J. Kudron, Michael A. Miller, Patrick Semrad, Michael Spangler, Aaron M. Weinberg, The Semrad Law Firm, LLC, Chicago, IL, for Harold and Lorraine Wade.

Order Confirming Termination of Stay and Denying Sanctions

ORDER

LaShonda A. Hunt, United States Bankruptcy Judge

At issue here is the scope of the termination of the automatic stay under 11 U.S.C. § 362(c)(3). Debtors, Harold and Lorraine Wade, assert that stay termination is limited to property of the debtors only , and, as such, creditor Kreisler Law P.C. ("Kreisler") should be sanctioned under § 362(k) for obtaining and recording a post-petition state court judgment against their personal residence. Kreisler, on the other hand, contends that the stay terminated as to property of the debtors and property of the estate, and, accordingly, seeks an order confirming the same pursuant to § 362(j). Bankruptcy courts are equally divided on this issue and the applicable statutory provision is subject to various interpretations. Nevertheless, for the reasons that follow, this court agrees with rulings from this district and others, holding that the stay termination applies to debtors personally as well as both their estate and non-estate property.

Background

The relevant facts are largely undisputed. Debtors had a prior joint Chapter 13 case, 13bk36999, that was voluntarily dismissed on November 20, 2014. Debtors subsequently filed this Chapter 13 petition on January 15, 2015, listing Kreisler as a creditor and identifying two service addresses on Armitage Avenue and Milwaukee Avenue in Chicago, Illinois, for notice purposes. Because the 2013 case had been dismissed within a year of the new filing, pursuant to 11 U.S.C. § 362(c)(3), the automatic stay in this case would terminate after 30 days, unless Debtors sought and obtained an extension prior to that expiration date. Debtors timely filed a motion to extend the stay but noticed the hearing for a day on which the assigned judge was not sitting; therefore, it was stricken from the call. Debtors did not re-notice the motion, and the automatic stay under § 362(a) terminated on February 14, 2015.

About two months later, in April 2015, Kreisler obtained and immediately recorded a state court judgment for nearly $30,000, on a pre-petition debt owed by one of the Debtors. Kreisler claims they were not aware of the 2015 bankruptcy filing until October 2017, when Debtors' real estate agent reached out after preparing to sell the property and discovering the judgment lien on the title. Kreisler concedes that the Milwaukee Avenue address on the creditor mailing matrix is accurate and that they received notice of the 2013 case dismissal in November 2014. Debtors further point out that the bankruptcy docket in this case reflects that their petition, proposed plan, motion to extend the automatic stay, and court-generated notices were all mailed to Kreisler at the Milwaukee Avenue address within the first few weeks of tiling of this case.¹

Kreisler initially agreed to vacate the post-petition judgment. But after further review, they concluded that the stay had actually terminated pre-judgment and their ensuing actions were proper. Debtors sought sanctions against Kreisler for violating the automatic stay. In response, Kreisler moved to confirm that the automatic stay had, in fact, terminated on February 14, 2015. Debtors filed a response to Kreisler's motion, contending that since the stay remained intact as to property of the estate. Kreisler was prohibited from pursuing any collection activity against their home. Furthermore, Debtors asserted that Kreisler had an affirmative duty to stay and/or dismiss the state court proceedings in light of the bankruptcy case. Although the court afforded Kreisler an opportunity to file a reply brief addressing these arguments, they did not do so.

Kreisler was apparently relying on representations in their earlier-filed motion to confirm, that during the 30-day period of the automatic stay, no action had been taken in state court against the Debtors. However, the court noticed that the public docket in the state court proceeding indicated a prove-up hearing had been set for February 10, 2015 (during the initial stay period), and continued to February 24, 2015. Upon further questioning on this point at a hearing on June 4, 201 8, counsel for Kreisler indicated that she had reviewed the state court file and did not believe that they requested the continuance. In any event, the state court docket reflects that the actual prove-up hearing, judgment and collection activities all occurred after February 14, 2015.

Discussion

The termination of stay provision in the Bankruptcy Code provides that:

(3) [I]f 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 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 later case ....

11 U.S.C. 362(c)(3)(A) (emphasis added). The operative phrase which has caused a divide courts is the phrase "with respect to the debtor."

The majority view interprets the phrase to mean that once the 30-day period lapses, the automatic stay only terminates with respect to non-estate property of the debtor, and remains in effect for property of the estate. See e.g., In re Holcomb, 380 B.R. 813 (B.A.P. 10th Cir. 2008) ; In re Jumpp, 356 B.R. 789 (B.A.P. 1st Cir. 2006) ; In re Roach , 555 B.R. 840 (Bankr. M.D. Ala. 2016) ; In re Scott-Hood, 473 B.R. 133 (Bankr. W.D. Tex. 2012) ; In re Rinard, 451 B.R. 12 (C.D. Cal. 2011) ; In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006). Other courts, including some in this district, have determined that the stay terminates as to all of the debtor's property, whether or not it is part of the bankruptcy estate. See, e.g., In re Reswick, 446 B.R. 362 (B.A.P. 9th Cir. 2011) ; In re Smith, 573 B.R. 298 (Bankr. D. Maine 2017) ; In re Bender, 562 B.R. 578 (E.D. N.Y. 2016) ; In re Furlong, 426 B.R. 303 (Bankr. C.D. Ill. 2010) ; In re Daniel, 404 B.R. 318 (Bankr. N.D. Ill. 2009) ; In re Curry, 362 B.R. 394 (Bankr. N.D. Ill. 2007). Debtors urge this court to follow the majority viewpoint but after reviewing the arguments on both sides, the court finds the reasoning and statutory analysis adopted by the "minority," as set forth by Judge Wedoff in In re Daniel, supra, more persuasive and consistent with Congressional intent.

In re Daniel dissects the various interpretations of the text. First, the phrase "with respect to the debtor" could mean that the stay terminates as to the debtor personally, while all of the debtor's property, both estate and non-estate, remains protected. 404 B.R. at 321–22. In other words, the stay would be terminated as to in personam collection actions, but not in rem collection actions. Id. at 322. However, Judge Wedoff rejected that notion, citing the fact that the statute also contains the phrase "with respect to a debtor or property securing such debt," and reading that to mean the stay must necessarily terminate as to some actions against property. Id.

A related approach involves treating the stay as terminating with regard to debtor and non-estate property. Id. at 323. Courts that favor this interpretation find this is the "plain meaning" of the statute, and most faithful to the bankruptcy policy of "obtaining a maximum and equitable distribution for creditors." Holcomb, 380 B.R. at 816. Those decisions point to language in § 362(a), which enumerates the actions subject to the stay, to show that when property of the estate is at issue, the word "estate" is specifically used. Jumpp, 356 B.R. at 794. While this is true, § 362(a) also specifically includes the phrases "against the debtor" and "against property of the debtor," neither of which are used in § 362(c)(3)(A). In fact, § 362(c)(3)(A) provides the only mention of the phrase "with respect to the debtor" contained in the section. Judge Wedoff points to this distinction as the reason the "estate-property" interpretation is untenable. Because the automatic stay applies to actions "against the debtor," "against property of the debtor," and "against property of the estate," there is no logical reason to read the phrase "with respect to the debtor" as applying to only two out of the three categories. Daniel, 404 B.R. at 323-24. Put another way,

[S]ection 362(c)(3)(A) terminates the stay under subsection (a). In general, the stay under subsection (a) halts three kinds of acts: those directed against the debtor personally, 11 U.S.C. § 362(a)(1), (2), (6) ; those directed against property of the estate, 11 U.S.C. § 362(a)(2), (3), (4) ; and those directed against property of the debtor, 11 U.S.C. § 362(a)(5). A reference to the entirety of ‘the stay under subsection (a)’ would seem to extend to all types of acts covered by the stay. Likewise, a termination of the ‘stay under subsection (a)’ would seem to leave no part of the stay in place.

Smith, 573 B.R. at 302.

Next, courts also compare the language used in § 362(c)(3)(A) to § 362(c)(4)(A)(i), since both provisions address the automatic "stay under subsection (a)" for repeat filers. See, e.g., In re Paschal, 337 B.R. 274, 278-79 (Bankr. E.D.N.C. 2006). Subsection 362(c)(3)(A), which applies to debtors with one prior case dismissed within a year of filing, terminates the stay "with respect to the debtor," while subsection 362(c)(4)(A)(i), which applies to debtors with two or more prior cases dismissed within a year of...