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Bankr. E.D.N.C.: In re Dev- Termination of the Automatic Stay

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By Ed Boltz, 5 February, 2019

Summary:

Mrs. Dev had filed three bankruptcy cases, with the second dismissed on September 12, 2017, and the third filed on February 13, 2018, for the purpose, among others, of stopping the foreclosure of her home by Coastal Federal Credit Union. CFCU brought a Motion for Relief arguing that it lacked adequate protection, that the plan was filed in bad faith, was abusive, and part of a scheme to delay, hinder and defraud CFCU. It sought in rem relief for two years. Ms. Dev's estranged husband also sought relief from the stay to continue an equitable distribution action in state court.

At the initial hearing of Mr. Dev's motions, the court sua sponte questioned whether the automatic stay was in effect or had, pursuant to 11 U.S.C. §362(c)(3)(A), terminated after thirty days. Citing to the long-standing opinions from the Eastern District, In re Paschal, 337 B.R. 274 (Bankr. E.D.N.C. 2006) and In re Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006), the debtor argued that the stay only terminated as to creditors which had taken actions and then only as to the debtor and not the estate. The bankruptcy court continued the hearing to allow participation by CFCU and for briefing by the parties. Prior to this point, Ms. Dev and CFCU reached a settlement of their issues, but the bankruptcy court proceeded regarding Mr. Dev and CFCU.

The bankruptcy court first reviewed Paschal, finding that the interpretation of §362(c)(3)(A) that the automatic stay terminated after 30 days as to creditors that had taken a formal action, remained persuasive, as it was meant to protect creditors who had "spent time and money to initiate a legal process, which is frustrated by repeated bankruptcy filings...." As such the automatic stay terminated as to both Mr. Dev and CFCU, who had both commenced legal action against Mrs. Dev.

Turning to Jones,  which had held that the stay only terminates under §362(c)(3)(A) "with respect to the debtor" and not as to the bankruptcy estate, the bankruptcy court rejected this prior opinion from its own district, despite recognizing that it was the majority position, in favor of In re Jupiter, 344 B.R. 754 (Bankr. D.S.C. 2006), which held that the plain meaning of the statute was instead controlled by the word "terminates" and the remainder of the phrase, "with respect to the debtor", reflected that the termination of the stay would only apply to a refiling debtor and not a joint debtor's interests. The bankruptcy court then reviewed the scant and spotty legislative history finding that indicated a desire to stop all bad faith successive filings. Based on this the bankruptcy court abandoned 12 years of stare decisis and found the automatic stay terminated, even as to CFCU, which had reached an agreement with Mrs. Dev for the continuation of the automatic stay.

Commentary:

This is a judicially activist decision that was not asked for by any party in the case and, in fact, contrary to an agreed resolution between Mrs. Dev and CFCU.

It ignores that the Trustee and the bankruptcy estate have an interest in assets, not just as to the equity, but as to how such incentivize a debtor to carry forward with a reorganization.

It overturns a long-standing position in the district, but, while taking comfort that it "is not the first to make a 180-degree turn on the issue", it did not follow is vacillating fellow decision, In re Goodrich, 587 B.R. 829 (Bankr. D. Vt. 2018), which at least granted that debtor additional time to seek an extension of the stay. Instead there was no "need to extend the same courtesy" to Mrs. Dev, since the automatic stay would not have been extended anyways. That the parties had reached their own agreement left the "free to negotiate a similar forbearance of foreclosure outside the protection of this court."

For a copy of the opinion, please see:

Dev- Termination of the Automatic StayDownload

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North Carolina Bankruptcy Cases
Eastern District

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