1 For Publication 2 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF CALIFORNIA 3 4 In re: ) ) 5 THU THI DAO, ) Case No. 20-20742-C-7 ) 6 Debtor. ) Dkt. Control No. DNL-2 ) 7 8 OPINION REGARDING STATUS OF AUTOMATIC STAY 9 CHRISTOPHER M. KLEIN, Bankruptcy Judge: 10 Bankruptcy Code provisions that apply in chapters 7, 11, and 11 13, should be interpreted to avoid dysfunction in all applicable 12 chapters. That precept has been neglected in chapter 13 13 decisions holding that the 11 U.S.C. § 362(c)(3) 30-day automatic 14 stay termination “with respect to the debtor” who files serial 15 cases also, by inference, extends to “property of the estate.” 16 This needless inference works havoc in chapter 7. 17 This is no minor matter because stripping the estate of stay 18 protection contradicts the central chapter 7 policy of maximum 19 and equitable distribution for creditors, for which the § 362(a) 20 stay of acts against property of the estate is a key tool. 21 Much ink has been spilled in chapter 13 cases, without 22 attending to chapter 7, over the question whether § 362(c)(3) 30- 23 day stay termination inferentially strips the automatic stay from 24 property of the estate. The circuits are divided. The majority 25 (50+ cases), now led by the Fifth Circuit, says the stay does not 26 terminate with respect to property of the estate. E.g., Rose v. 27 Select Portfolio Serv’g, Inc., 945 F.3d 226 (5th Cir. 2019), 28 petition for cert. filed, (U.S. Feb. 20, 2020)(No. 19-1035). The 1 minority (20+ cases), led by the First Circuit, says the stay 2 ceases to protect property of the estate. E.g., Smith v. Me. 3 Bur. of Rev. Servs. (In re Smith), 910 F.3d 576 (1st Cir. 2018). 4 Although the Ninth Circuit has not ruled, its Bankruptcy 5 Appellate Panel has sided with the minority. Reswick v. Reswick 6 (In re Reswick), 446 B.R. 362 (9th Cir. BAP 2011). 7 The chapter 7 trustee, pursuant to the personal property 8 provisions of 11 U.S.C. § 362(h)(2), and fearing Reswick, asks 9 this court to assure the automatic stay continues unabated. He 10 believes unscheduled assets exist that need protection. 11 This court is granting the § 362(h)(2) motion so as to 12 preserve the automatic stay with respect personal property of the 13 estate of the individual debtor and denying it as unnecessary as 14 to real property as § 362(c)(3) does not end its stay protection. 15 The factual setting enables contrasts among the chapters to 16 which § 362(c)(3) applies and between § 362(c)(3) and § 362(h), 17 revealing that § 362(c)(3) does not modify or affect § 362(c)(1). 18 19 Facts 20 The self-represented debtor filed chapter 7 case No. 20- 21 20166-A-7 on January 13, 2020, which case was dismissed on 22 January 31, 2020, for failure timely to file schedules. 23 The debtor filed this case on February 10, 2020. Some of 24 the required schedules and statements have been filed, but not 25 the Statement of Intention required by § 521(a)(2). 26 The manner in which documents have been prepared invites 27 questions about whether there has been full, candid, and complete 28 disclosure of all of the debtor’s financial affairs. Moreover, 1 there is no clear delineation among real and personal property. 2 The trustee has identified potential interests in properties 3 associated with the debtor’s name that do not appear to have been 4 included on the schedules. 5 The trustee filed on March 11, 2020, the “Trustee’s Motion 6 to Extend the Automatic Stay as to All Creditors and Order 7 [Debtor] to Deliver Collateral to the Trustee” under § 362(h)(2), 8 asserting that there is personal and real property of the estate 9 that is of consequential value or benefit to the estate that must 10 be delivered to the trustee. 11 Although § 362(h)(1) stay termination applies only to 12 “personal property of the estate” upon failure to file a timely 13 statement of intention within the 30 days specified by 14 § 521(a)(2)(A), the trustee, by also including real property in 15 the motion, was worried that Reswick could terminate the stay 16 regarding real property. 17 In the procedural posture of the case, the allegations 18 regarding unscheduled assets are accepted as true. 19 20 Jurisdiction 21 Subject-matter jurisdiction is based on 28 U.S.C. § 1334(a). 22 A trustee’s motion to preserve the automatic stay concerns 23 estate administration and is a core proceeding that a bankruptcy 24 judge may hear and determine. 28 U.S.C. § 157(b)(2)(A). 25 26 Analysis 27 Analysis begins with the § 362(c)(3) controversy, notes the 28 dysfunction resulting in chapter 7 from stay termination for 1 property of the estate, contrasts § 362(c)(3) with § 362(h), and 2 looks through the prism of an exemplar scenario. 3 4 I 5 It is axiomatic that the automatic stay protects multiple 6 interests. At a minimum there is the interest of the estate and 7 the interest of the debtor. Property may be simultaneously 8 property of the estate and property of the debtor. Cf. Schwab v. 9 Reilly, 560 U.S. 770, 782-85 (2010) (interest of estate and 10 debtor in exempt property). Thus, in stay relief matters, courts 11 commonly address those interests separately and may grant relief 12 as to one or the other or both. 13 14 II 15 The controversy that has arisen predominately in chapter 13 16 cases, and usually without reference to chapter 7, is whether the 17 phrase “shall terminate with respect to the debtor” in 18 § 362(c)(3)(A) should be construed implicitly to extend to the 19 “estate,” hence to “property of the estate,” even though neither 20 “estate” nor “property of the estate” appears in § 362(c)(3): 21 (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, 22 or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was 23 dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b) -- 24 (A) the stay under subsection (a) with respect to any action taken with respect to a debt or property 25 securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day 26 after the filing of the case; 27 11 U.S.C. § 362(c)(3)(A). 28 1 The majority says § 362(c)(3) is not ambiguous and that 2 extending stay termination to the estate and property of the 3 estate is a bridge too far that offends “plain language” that 4 threatens to read § 362(c)(1) out of the statute. The minority 5 finds ambiguity and reasons that inferring such an extension is 6 consistent with the Congressional purpose of thwarting bad-faith 7 manipulations of bankruptcy. 8 It is puzzling that the debaters, particularly the minority, 9 ignore the chapter 7 implications of their chapter 13 rulings 10 regarding § 362(c)(3). From the chapter 7 perspective, 11 inferentially extending stay termination to property of the 12 estate amounts to throwing the baby out with the bath water. 13 14 A 15 Anomalies emerge from reading the competing chapter 13 16 decisions. 17 First, while paying lip service to strictures to attend to 18 the entire statutory text and the broader context of the statute, 19 chapter 13 tunnel vision manifests itself by way of disregard of 20 how § 362(c)(3) applies in chapter 7. 21 Second, when focusing on subsection (A), the decisions 22 disregard the contextual implications of subsections (B) and (C) 23 and, in particular, disregard implications of those subsections 24 for chapter 7 trustees. 25 Third, there is no consideration of the contrasting 26 provisions of § 362(h) terminating the stay for certain personal 27 “property of the estate” as to which Congress was explicit in the 28 same Act of Congress that created § 362(c)(3). 1 Nor is there reasoned explanation of how § 362(c)(3) meshes 2 with the § 362(c)(1) property of the estate indefinite duration. 3 4 B 5 Exacerbating the analytical flaws is a distortion created by 6 the fact that chapters 11 and 13 feature debtor in possession 7 provisions that do not exist in chapter 7. 11 U.S.C. §§ 1115(b) 8 & 1306(b). 9 If the purpose of Congress was to thwart manipulative 10 debtors, then it is easy to succumb to the temptation also to 11 thwart their management of property of the estate. 12 But, what may seem a benign check on shifty chapter 13 13 debtors turns malignant in chapter 7 where trustees, not debtors, 14 always control property of the estate and have a duty to maximize 15 its value. 11 U.S.C. § 704(a)(1). 16 17 C 18 Any convincing analysis of the effect of § 362(c)(3) on 19 property of the estate, in addition to overcoming its 20 contradiction of § 362(c)(1), must take into account how 21 § 362(c)(3) applies in chapter 7 cases where debtors never are in 22 possession of property of the estate. 23 Convincing analysis of § 362(c)(3) would also explain why 24 Congress chose not to use in § 362(c)(3) the language it used in 25 the same Act of Congress in the parallel provision at § 362(h) 26 expressly terminating the stay protecting secured personal 27 property of the estate in specified circumstances in a manner 28 that meshed perfectly with § 362(c)(1): “the stay provided by 1 subsection (a) is terminated with respect to personal property of 2 the estate or of the debtor securing in whole or in part a claim 3 ... and such personal property shall no longer be property of the 4 estate.” 11 U.S.C. § 362(h)(1) (emphasis supplied). 5 Similarly, convincing analysis must explain how 6 § 362(c)(3)(C) functions for a chapter 7 trustee, who, if 7 property of the estate loses stay protection per § 362(c)(3)(A), 8 would be subjected to an impossibly short deadline to prove by 9 “clear and convincing evidence” that the chapter 7 case was filed 10 in good faith even though chapter 7 does not have a good faith 11 filing requirement.1 12 A review of how § 362(c)(3) would apply in chapter 7 exposes 13 the absurdity of extending § 362(c)(3) to property of the estate. 14 Nor is the inclusion of chapter 7 in § 362(c)(3) a sideshow; 15 rather, chapter 7, which comprises 60 percent of all bankruptcy 16 filings, is the main event. It is the chapter 13 decisions that 17 amount to tail wagging dog.2 18 19 III 20 The background behind § 362(c)(3) was the abuse perceived in 21 the stratagem of some consumer debtors using repetitive filings 22 of bankruptcy cases to exploit the automatic stay as a delay 23 tactic invoked on the eve of a foreclosure or an eviction without 24 1See Marrama v. Citizens Bank, 549 U.S. 365, 374-75 & n.11 25 (2007) (Debtor’s bad faith chapter 7 case filing leads to 26 forfeiture of right to convert from chapter 7 to chapter 13). 27 22019 Annual Report of U.S. Courts, Table F-2 (Bankruptcy cases commence – 12-Month Period Ending March 31, 2019). Total 28 all chapters: 772,646. Chapter 7: 477,106 (61.75%). Chapter 11: 6,891 (.009%). Chapter 13: 288,039 (37.03%). 1 actually intending to complete the bankruptcy process. 2 Read as a whole, § 326(c)(3),3 with its sub-, subsub-, and 3 4 3The full text of § 362(c)(3) is: 5 (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, 6 or 13, and if a single or joint case of the debtor was pending within the preceding 1-year period but was 7 dismissed, other than a case refiled under a chapter other than chapter 7 after dismissal under section 707(b) -- 8 (A) the stay under subsection (a) with respect to any 9 action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with 10 respect to the debtor on the 30th day after the filing of the later case; 11 (B) on the motion of a party in interest for continuation of the automatic stay and upon notice and a 12 hearing, the court may extend the stay in particular cases as to any or all creditors (subject to such conditions or 13 limitations as the court may then impose) after notice and a hearing completed before the expiration of the 30-day period 14 only if the party in interest demonstrates that the filing 15 of the later case is in good faith as to the creditors to be stayed; and 16 (C) for purposes of subparagraph (B), a case is presumptively filed not in good faith (but such presumption 17 may be rebutted by clear and convincing evidence to the contrary) — 18 (i) as to all creditors, if — (I) more than 1 previous case under any of 19 chapters 7, 11, and 13 in which the individual was a debtor was pending within the preceding 1-year period; 20 (II) a previous case under any of chapters 7, 11, 21 and 13 in which the individual was a debtor was dismissed within such 1-year period, after the debtor failed to — 22 (aa) file or amend the petition or other documents as required by this title or the court without 23 substantial excuse (but mere inadvertence or negligence shall not be a substantial excuse unless the dismissal was 24 caused by the negligence of the debtor’s attorney); (bb) provide adequate protection as ordered 25 by the court; or (cc) perform the terms of a plan confirmed by 26 the court; or 27 (III) there has not been a substantial change in the financial or personal affairs of the debtor since the 28 dismissal of the next most previous case under chapter 7, 11, or 13 or any other reason to conclude that the later 1 subsubsub-sections is a 489-word provision designed to forestall 2 serial filings intended to delay foreclosures or evictions. 3 4 A 5 Legislative history is of little use in construing the 6 language “with respect to the debtor” in subsection (A), but the 7 intellectual history of the genesis of § 362(c)(3) is helpful to 8 understanding what Congress was talking about. 9 The serial filing problem was mainly a chapter 13 issue 10 because chapter 13 debtors may dismiss a case as of right, only 11 to file another case, triggering another automatic stay. 11 12 U.S.C. § 1307(b). To be sure, the stratagem also worked in 13 chapter 7. The debtor would file a case, default in chapter 7 14 duties to pay fees and file schedules, suffer dismissal of the 15 case after 30 or 60 days, and then file anew. 16 In 1997, the National Bankruptcy Review Commission flagged 17 repeat filings as a chapter 13 problem and suggested limiting the 18 automatic stay so as to discourage nonmeritorious petitions filed 19 20 21 22 case will be concluded — (aa) if a case under chapter 7, with a 23 discharge; or (bb) if a case under chapter 11 or 13, with a 24 confirmed plan that will be fully performed; and (ii) as to any creditor that commenced an action under 25 subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, 26 that action was still pending or had been resolved by 27 terminating, conditioning, or limiting the stay as to actions of such creditor; 28 11 U.S.C. § 362(c)(3). 1 merely to stay foreclosure sale or eviction.4 2 In 1998, the House and Senate Judiciary Committees proposed 3 language that eventually became the basis for enactment of 4 § 362(c)(3) in the Bankruptcy Abuse and Consumer Protection Act 5 of 2005 Pub. L. 109-8, § 302, 119 Stat. 23 (Apr. 20, 2005); see 6 H.R. Rep. No. 105-540, at 80 (1998) (H.R. 3150, 105th Cong. 7 § 121); S. Rep. No. 105-253, at 39 (1998)(S. 1301, 105th Cong. 8 § 303)(“Bankruptcy Amendments of 2005"). 9 One would expect that the language would have been refined 10 during the usual legislative process to eliminate ambiguities in 11 proposed § 362(c)(3). But the legislative process leading to the 12 2005 Bankruptcy Amendments was anything but ordinary. 13 Nothing in the Congressional materials indicates that there 14 was any thought given to whether proposed § 362(c)(3) would 15 affect a chapter 7 trustee. 16 The paucity of Congressional materials results from the 17 history of the 2005 Bankruptcy Amendments. The bill that was 18 enacted was pending in Congress from 1998 until 2005, with some 19 early committee consideration before 2000. For a number of years 20 it was stalled in a highly-partisan environment by various issues 21 unrelated to serial filings. No amendments in the nature of 22 technical corrections or refinements were entertained. 23 At final passage in 2005 — a point at which one would expect 24 comprehensive review — the legislation was placed under a “no 25 amendment” decree by Congressional leadership. H.R. Res. 211, 26 27 4It was particularly troublesome in the Central District of California. Nat’l Bankr. Rev. Comm’n, Report (Oct. 20, 1997) 28 § 1.5.5, p. 279 & nn. 732-33, available at https://govinfo.library.unt.edu/nbrc/report/08consum.pdf. 1] 109th Cong. (2005); H.R. Rep No. 109-43 (2005). This truncated legislative process. See Susan Jensen, A Legislative History 3] of the Bankruptcy Abuse Prevention and Consumer Protection Act of 42005, 79 Am, BANKR. L.J. 485, 518-566 & n.507 (2005). 5 Throughout, Congress was silent about the effect of the 30- day termination provision of § 362(c) (3) on a chapter 7 trustee. 7 Bottom line: any reasoning premised on inferences of 8 1} Congressional intent is unusually untrustworthy. 9 10 11 The genesis of § 362(c) (3) suggests three alternative views 12 || about its effect on a chapter 7 trustee in the context of 13] $ 362(c), which deals exclusively with duration of stay. 14 The first possibility is that the drafters of §$ 362(c) (3) 15 ||} were mindful of the separate stay duration status for “property the estate” under § 362(c)(1)° and the rights of a chapter 7 17 || trustee and, by using the phrase “terminate with respect to the 18 |} debtor,” were referring only to stay duration regarding the 19 20 21 -The text of § 362(c) (1) is: 22 (1) the stay of an act against property of the estate 23 under subsection (a) of this section continues until such property is no longer property of the estate. 11 U.S.C. 2 1). U.S.C. § 362 (c) (1) 26 Status as property of the estate may survive the closing of the case. Compare 11 U.S.C. § 554(c), with id. § 554(d); In re 27 | Dunning Bros. Co., 410 B.R. 877 (Bankr. E.D. Cal. 2009) (case filed in 1935 reopened in 2009 to administer unscheduled asset); 28 also, First Nat’l Bank v. Lasater, 196 U.S. 115,119 (1905) (Bankruptcy Act). 11
1 debtor under § 362(c)(2),6 while taking care to preserve the stay 2 with respect to the trustee’s interest in property of the estate. 3 The second possibility is that Congress intended to strip 4 chapter 7 trustees of automatic stay protection for property of 5 the estate but chose not to say anything about it. 6 The third alternative is that Congress gave no thought to 7 the issue of the trustee’s rights in property of the estate. 8 9 1 10 The majority of § 362(c)(3) decisions align with the first 11 possibility. 12 The majority reasons as follows: (1) the language of 13 § 362(c)(3)(A) is not ambiguous; (2) nowhere in § 362 does 14 Congress use the phrase “with respect to the debtor” to encompass 15 property of the estate; (3) Congress knew how to specify the 16 “estate” and did not do so; (4) § 362(a) differentiates between 17 acts against the debtor and acts against property of the estate; 18 (5) construing “with respect to the debtor” as not applying to 19 property of the estate is consistent with fundamental bankruptcy 20 21 6With respect to the debtor, the stay expires per 22 § 362(c)(2): 23 (2) the stay of any other act [i.e. not property of the estate] under subsection (a) of this section continues until 24 the earliest of — (A) the time the case is closed; 25 (B) the time the case is dismissed; or (C) if the case is a case under chapter 7 of this 26 title concerning an individual or a case under chapter 9, 27 11, 12, or 13 of this title, the time a discharge is granted or denied; 28 11 U.S.C. § 362(c)(2). 1] policy of obtaining a maximum and equitable distribution for creditors; (6) enabling an oversecured creditor to appropriate to 3 |} itself equity above the creditor’s security interest impairs the 4], ability of the trustee to pay a dividend to creditors. Holcomb Hardeman (In re Holcomb), 380 B.R. 813, 816 (10th Cir. BAP 6 |} 2008) (chapter 13), cited with approval, Rose, 945 F.3d at 230; accord, Rinard v. Positive Invs., Inc. (In re Rinard), 451 B.R. 17 (Bankr. C.D. Cal. 2011) (chapter 7), cited with approval, 91} Rose, 945 F.3d at 230 n.10. 10 Of these majority cases, only Rinard presents a question 11 |} regarding a chapter 7 trustee concerned about stay protection for 12 || property of the estate. 13 14 15 The minority of § 362(c) (3) decisions align with the second 16 || possibility - that Congress intended to strip chapter 7 trustees 17 of automatic stay protection for property of the estate but not 18 || say anything about it. 19 The reasoning goes as follows: (1) § 362(c) (3) (A) is 20 | ambiguous; (2) Congressional intent is determinative; (3) an 21} ensuing exegetical examination of legislative history yields a 22 conclusion that Congress probably meant to terminate protection for property of the estate. Smith, 910 F.3d at 589-91 (chapter 2413); Reswick, 446 B.R. at 370-73 (chapter 13); In re Daniel, 404 318, 327-29 (Bankr. N.D. Ill. 2009) (chapter 13, later 26 || converted to chapter 7). 27 Swept under the carpet is the fact that Congress in the 2005 28} Amendments, at § 362(h), did expressly terminate the stay with
1 respect to certain personal property of the estate, using 2 language stating “such personal property shall no longer be 3 property of the estate.” 11 U.S.C. § 362(h)(1). This meshes 4 precisely with the § 362(c)(1) provision that “the stay of an act 5 against property of the estate ... continues until such property 6 is no longer property of the estate.” 11 U.S.C. § 362(c)(1). 7 The minority decisions neither mention nor attempt to 8 explain the asymmetry between § 362(h) and § 362(c)(3). 9 Often, the procedural context for the issue at hand is 11 10 U.S.C. § 362(j).7 There, a chapter 13 debtor, tainted by serial 11 filer status, resists a creditor’s motion for confirmation that 12 the automatic stay has terminated by using the property of the 13 estate argument as a pretext to resist foreclosure or eviction. 14 Smith, 910 F.3d at 579 (§ 362(j)); Daniel, 404 B.R. at 320 15 (§ 362(j) in chapter 13 case, converted to chapter 7). 16 A § 362(j) motion typically is a two-party debtor-creditor 17 dispute not involving the chapter 7 trustee in which the parties 18 lack an incentive to make arguments characteristic of a trustee. 19 It is significant that none of the minority cases involve a 20 chapter 7 trustee concerned about preserving stay protection for 21 property of the estate.8 22 23 7The text of § 362(j) is: 24 (j) On request of a party in interest, the court shall issue an order under subsection (c) confirming that the 25 automatic stay has been terminated. 26 11 U.S.C. § 362(j). 27 8Daniel was a two-party debtor-creditor § 362(j) contest in 28 a case filed under chapter 13 and later converted to chapter 7 in which contest the chapter 7 trustee did not participate. The 1 IV 2 The importance of property of the estate to chapter 7 cases 3 warrants emphasis. 4 5 A 6 The first enumerated duty of a chapter 7 trustee is to 7 “collect and reduce to money the property of the estate.” 11 8 U.S.C. § 704(a)(1).9 9 Property of the estate, in general, is comprised of all 10 legal or equitable interests of the debtor as of commencement of 11 the estate, together with interests in property recovered by the 12 trustee or preserved for the benefit of the estate, certain post- 13 petition acquisitions, and proceeds, product, offspring, rents or 14 profits of or from property of the estate. 11 U.S.C. § 541(a). 15 16 B 17 A crucial tool in the chapter 7 trustee’s toolbox is the 18 automatic stay. 19 The automatic stay arising in consequence of the filing of a 20 petition initiating a bankruptcy case protects property of the 21 22 court ignored the chapter 7 problem with the comment, “The conversion has no effect on the issues raised by the bank’s 23 motion.” Daniel, 404 B.R. at 320 n.1. 24 9The full text of § 704(a)(1) is: 25 (a) The trustee shall — (1) collect and reduce to money the property of the 26 estate for which such trustee serves, and close such estate 27 as expeditiously as is compatible with the best interests of parties in interest; 28 11 U.S.C. § 704(a)(1). 1}}estate from judgment enforcement, acts to obtain possession of property of the estate, and acts to create, perfect, or enforce a 3]}lien. 11 U.S.C. § (a). 4 The automatic stay of an act against property of the estate 5 || continues until such property is no longer property of the estate. 11 U.S.C. § 362(c) (1). 7 Unless the court orders otherwise, property scheduled in 8 |} accordance with the debtor’s duty to file schedules of assets and otherwise administered at the time of closing of the case is 10) abandoned and deemed administered, but unscheduled property that 11]} is neither formally abandoned nor administered remains property 12 || of the estate in perpetuity. 11 U.S.C. §§ 554(c)-(d); Lasater, U.S. at 119; Dunning Bros. Co., 410 B.R. at 888. 14 It follows under § 362(c) (1) that the automatic stay remains 15 ]} in effect to protect property that remains property of the estate 16] after the case is closed. 17 This post-closing continuation of the stay against acts 18 | against property of the estate has proved to be a vital tool for policing cheating and enforcing compliance with the requirement 20 of disclosure of all interests in property wherever located and 21 | by whomever held. 11 U.S.C. § 541l(a); Lasater, 196 U.S. at 119; 22) Dunning Bros. Co., 410 B.R. at 888. 23 Acts in violation of the automatic stay are either void ab initio or voidable. Compare, e.g., Schwartz v. United States (in 25} re Schwartz), 954 F.2d 569, 571-72 (9th Cir. 1992),and Soares v. 26 || Brockton Credit Union (In re Soares), 107 F.3d 969, 975-76 (1st 27 | Cir. 1997), with Jones v. Garcia (In re Jones), 63 F.3d 411, 412 28 (Sth Cir. 1995).
1 All of this adds up to powerful protection for property of 2 the estate in chapter 7 cases. This shield can be crucial in 3 enabling the chapter 7 trustee to perform the duty to collect and 4 reduce to money the property of the estate. 5 It would be extraordinary for Congress to have eviscerated 6 this fundamental protection for property of the estate without so 7 much as an explanatory comment. 8 9 V 10 An essential tool for chapter 7 trustees in performance of 11 their duties is not likely to have been stripped away merely 12 because the debtor earlier filed a case that was not completed. 13 Yet, that is the gravamen of what the minority in the 14 § 362(c)(3) debate contends when it says the stay terminates with 15 respect to property of the estate in chapter 7 cases. And, it 16 does so with zero analysis of how the chapter 7 trustee fits in. 17 They hold that § 362(c)(3) implicitly modifies § 362(c)(1). 18 Smith, 910 F.3d at 588-89.10 No mention is made of § 554(c), 19 § 554(d), or of the chapter 7 trustee. 20 21 22 10The First Circuit asserted, ex cathedra: 23 Specifically, under § 362(c)(1), the stay “continues until 24 [estate] property is no longer property of the estate.” And under § 362(c)(2), “the stay of any other act under 25 subsection (a) continues until ... the case is closed” or “the time the case is dismissed” or a “discharge is granted 26 or denied.” These instructions are applicable only so long 27 as the stay has not otherwise lifted under § 362(c)(3)(A), or some other provision. 28 Smith, 910 F.3d at 589 (citations omitted, ellipsis in original). 1 Their answer is that the stay can be extended under 2 § 362(c)(3)(B). Smith, 910 F.3d at 588.11 But no analysis is 3 made of how a chapter 7 trustee could comply with the extension 4 rules that feature an impossibly short deadline and a “clear and 5 convincing” burden of proof. 6 7 VI 8 Issues of timing and proof become important when one focuses 9 on the operational mechanics of how a chapter 7 trustee could 10 comply with the extension rules to avoid 30-day stay termination 11 if the minority is correct that the stay protecting property of 12 the estate evaporates on the 30th day after case filing. 13 14 A 15 The timing required by § 362(c)(3)(B) is irretrievably at 16 odds with chapter 7 process where a meeting of creditors need not 17 occur until 60 days into the case. 18 19 20 11The First Circuit reasoned: 21 A second-time filer with a meritorious bankruptcy case, or a 22 creditor whose self-interest dictates it, may get an extension of the stay on “demonstrat[ing] that the filing of 23 the later case is in good faith as to the creditors to be stayed.” § 362(c)(3)(B). Notably, courts must act quickly 24 on these requests; Congress provided that any hearing on a request for an extension must be “completed before the 25 expiration of the 30-day period.” Section 362(c)(3)(B) reflects an attempt by Congress to ensure that certain 26 second-time filers who meet an enhanced burden have an 27 escape route from the termination of the entire automatic stay, including as to actions against estate property. 28 Smith, 910 F.3d at 588. 1 The § 362(c)(3)(B) motion to extend must be made in time for 2 notice and a hearing that must be completed within 30 days after 3 the filing of the case. 11 U.S.C. § 362(c)(3)(B). 4 That rigid 30-day post-filing deadline for completing a 5 hearing on a § 362(c)(3)(B) request to preserve the stay 6 contradicts basic chapter 7 procedure. 7 8 1 9 Until the debtor files the various required schedules and 10 statements, a chapter 7 trustee knows only the names and 11 addresses of the creditors, codebtors, and parties to executory 12 contracts and unexpired leases that must be filed with the 13 petition. 11 U.S.C. § 521(a); Fed. R. Bankr. P. 1007(a)(1). 14 The debtor is not required until the 14th day after filing a 15 voluntary petition to file schedules of assets and liabilities, 16 current income and expenditures, executory contracts and 17 unexpired leases, statement of financial affairs, payment 18 advices, record of interest in certain education accounts, 19 statement of current monthly income on the prescribed Official 20 Form. 11 U.S.C. § 521(a); Fed. R. Bankr. P. 1007(c). 21 The 14-day deadline may be, and often is, extended on motion 22 for cause on notice to the United States trustee and the 23 chapter 7 trustee. Fed. R. Bankr. P. 1007(c). 24 The filing of those schedules and statements is the point at 25 which a chapter 7 trustee begins to see the picture of the case. 26 Those who maintain that the stay protecting property of the 27 estate evaporates on day 31 of a chapter 7 case do not explain 28 how a chapter 7 trustee can be expected to meet the 1 § 362(c)(3)(B) deadline without having had a meaningful 2 opportunity to examine the schedules and statements. 3 4 2 5 The next chapter 7 event is the meeting of creditors 6 pursuant to 11 U.S.C. § 341 at which the chapter 7 trustee and 7 creditors interrogate the debtor under oath and assesses whether 8 the case is likely to have assets, i.e. property of the estate, 9 sufficient to enable a dividend for creditors. 10 The United States trustee must call the meeting of creditors 11 “within a reasonable time after the order for relief.” 11 U.S.C. 12 § 341(a). 13 As implemented by Rule 2003(a), § 341(a) “reasonable time” 14 in chapter 7 cases is no fewer than 21 days and not more than 60 15 days after the order for relief. Fed. R. Bankr. P. 2003(a) 16 Those who contend that the stay protecting property of the 17 estate evaporates on day 31 of a chapter 7 case do not explain 18 how a chapter 7 trustee can be expected to meet the 19 § 362(c)(3)(B) deadline before the meeting of creditors is held. 20 The reality is that the timing is impossibly contradictory. 21 22 B 23 The § 362(c)(3)(C) burden of proof for requests to preserve 24 the stay is impossible for a chapter 7 trustee to satisfy. 25 Proof and burden of proof under §§ 362(c)(3)(B) and (C) 26 would require a chapter 7 trustee to run a course of high hurdles 27 in order to preserve the stay. 28 1 1 2 If § 362(c)(3) applies to property of the estate, then the 3 chapter 7 trustee would have to prove that the filing of the case 4 was “in good faith as to the creditors to be stayed.” 11 U.S.C. 5 § 362(c)(3)(B). But, the Bankruptcy Code does not require “good 6 faith” for filing a chapter 7 case.12 7 How is a chapter 7 trustee at the outset of a case in a 8 position to assess the good faith of the debtor? If the 9 trustee’s suspicions about unscheduled property turn out to be 10 correct, there will be substantial grounds to question the 11 debtor’s good faith. 12 So what? Regardless of the debtor’s good or bad faith, it 13 is still a chapter 7 case with property of the estate controlled 14 by a trustee who has a duty to collect and reduce to money the 15 property of the estate. 11 U.S.C. § 704(a)(1). 16 17 2 18 Proving “good faith” begins with a statutory presumption 19 that every subsequent case filed within one year after dismissal 20 is “filed not in good faith.” 11 U.S.C. § 362(c)(3)(C). 21 Rebutting the presumption of “filed not in good faith” must 22 be by “clear and convincing evidence to the contrary.” 11 U.S.C. 23 § 362(c)(3)(C). 24 25 12Marrama, 549 U.S. at 374-75 & n.11. But, to be precise, 26 “good faith” is not always irrelevant. If a § 707(b) motion to 27 dismiss the case as a substantial abuse of chapter 7 is made, factors for the court to consider include “whether the debtor 28 filed the petition in bad faith,” along with “totality of the circumstances.” 11 U.S.C. § 707(b)(3). 1 Viewing the remaining requirements of § 362(c)(3)(C)(i) so 2 as to enable the trustee to sidestep some of the statutory 3 hurdles, the chapter 7 trustee would still need to prove by clear 4 and convincing evidence that the chapter 7 case “will be 5 concluded ... with a discharge.” § 362(c)(3)(C)(i)(III)(aa). 6 An internal contradiction emerges. Requiring the chapter 7 7 trustee to prove by clear and convincing evidence that the case 8 will be concluded with a chapter 7 discharge conflicts with the 9 trustee’s statutory duty “if advisable” to “oppose the discharge 10 of the debtor.” 11 U.S.C. § 704(a)(6). 11 If the trustee’s suspicions about this case are borne out, 12 there is a nontrivial chance that the trustee actually will 13 successfully oppose the discharge of the debtor. 14 Indeed, this court’s order under § 362(h)(2) will direct the 15 debtor to deliver to the trustee personal property collateral in 16 the debtor’s possession. Noncompliance with any such order is an 17 independent ground to deny discharge. 11 U.S.C. § 727(a)(6)(A). 18 There is a canon against construing a statute to achieve 19 absurd results. Extending “against the debtor” in § 362(c)(3) to 20 encompass the chapter 7 trustee’s interest in “property of the 21 estate” is Exhibit A for absurdity. 22 23 VII 24 Contrast with § 362(c)(3) the regime created by its cousin 25 at § 362(h)(2) relating to stay termination regarding personal 26 property of the estate in chapter 7 cases, which affords a 27 chapter 7 trustee a reasonable opportunity to preserve the stay. 28 1 If certain conditions regarding debts secured by personal 2 property of the estate are not satisfied by the debtor in chapter 3 7 cases, then “the stay provided by subsection (a) is terminated 4 with respect to personal property of the estate ... and such 5 personal property shall no longer be property of the estate.” 11 6 U.S.C. § 362(h)(1) (emphasis supplied).13 7 The trustee, however, may prevent stay termination by 8 persuading the court that the subject personal property is of 9 consequential value or benefit to the estate and providing 10 adequate protection of the secured interest. 11 U.S.C. 11 § 362(h)(2).14 12 13Section 362(h)(1) provides: 13 14 (1) In a case in which the debtor is an individual, the stay provided by subsection (a) is terminated with respect 15 to personal property of the estate or of the debtor securing in whole or in part a claim, or subject to an unexpired 16 lease, and such personal property shall no longer be property of the estate if the debtor fails within the 17 applicable time set by section 521(a)(2) — (A) to file timely any statement of intention required 18 under section 521(a)(2) with respect to such personal property or to indicate in such statement that the debtor 19 will either surrender such personal property or retain it 20 and, if retaining such personal property, either redeem such personal property pursuant to section 722, enter into an 21 agreement of the kind specified in section 524(c) applicable to the debt secured by such personal property, or assume 22 such unexpired lease pursuant to section 365(p) if the trustee does not do so, as applicable; and 23 (B) to take timely the action specified in such statement, as it may be amended before expiration of the 24 period for taking action, unless such statement specifies the debtor’s intention to reaffirm such debt on the original 25 contract terms and the creditor refuses to agree to the 26 reaffirmation on such terms. 27 11 U.S.C. § 362(h)(1). 28 14Section 362(h)(2) provides: 1 The touchstone in § 362(h) is § 521(a)(2) regarding a duty 2 of individual chapter 7 debtors requiring a Statement of 3 Intention regarding retention or surrender of secured property. 4 11 U.S.C. § 521(a)(2).15 5 The first thing to note is that, by the terms of 6 7 (2) Paragraph (1) does not apply if the court determines, 8 on the motion of the trustee filed before the expiration of the applicable time set by section 521(a)(2), after notice 9 and a hearing, that such personal property is of consequential value or benefit to the estate, and orders 10 appropriate adequate protection of the creditor’s interest, and orders the debtor to deliver any collateral in the 11 debtor’s possession to the trustee. If the court does not so determine, the stay provided by subsection (a) shall 12 terminate upon the conclusion of the hearing on the motion. 13 11 U.S.C. § 362(h)(2). 14 15Section 521(a)(2) provides: 15 (2) if an individual debtor’s schedule of assets and 16 liabilities includes debts which are secured by property of the estate — 17 (A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the 18 date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within 19 such period fixes, file with the clerk a statement of his intention with respect to the retention or surrender of such 20 property and, if applicable, specifying that such property 21 is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts 22 secured by such property; and (B) within 30 days after the first date set for the 23 meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day 24 period fixes, perform his intention with respect to such property, as specified by subparagraph (A) of this 25 paragraph; Except that nothing in subparagraphs (A) and (B) of this 26 paragraph shall alter the debtor’s or the trustee’s rights 27 with regard to such property under this title, except as provided in section 362(h). 28 11 U.S.C. § 521(a)(2). 1 § 521(a)(2), unscheduled property is not affected by § 362(h) and 2 is not at risk of loss of stay protection. 3 Next, the timing for a chapter 7 trustee to act, which 4 derives from the deadlines imposed by § 521(a)(2), is 5 considerably more flexible than § 362(c)(3). If the debtor has 6 filed the requisite Statement of Intention, which typically is 7 included in the package of schedules and statements, the 8 § 521(a)(2) deadline will not be until 30 days after the first 9 date set for the meeting of creditors, and the trustee has an 10 opportunity to obtain an extension. 11 The § 362(h)(2) burden of proof is likewise more forgiving 12 than § 362(c)(3). Instead of “clear and convincing evidence,” a 13 chapter 7 trustee need only persuade the court, that the subject 14 personal property is of consequential value or benefit to the 15 estate and that adequate protection is being provided. If so 16 persuaded, the court grants the motion and orders the debtor to 17 deliver personal property in the debtor’s possession to the 18 trustee. 11 U.S.C. § 362(h)(2). 19 20 VIII 21 Rinard provides an illustration of how value could sneak out 22 the door if § 362(c)(3) were to extend to property of the estate 23 in a chapter 7 case. 24 As with the present case, Rinard began with a chapter 7 case 25 that was dismissed on day 21 for missing the deadline to file 26 schedules and was followed 15 days later with a second chapter 7 27 case in which schedules were filed timely. 28 1 Property of the estate included the surplus value in real property. More than 30 days after the filing of the second case, 3 || California nonjudicial foreclosure proceedings were commenced 4i}with respect to a debt of $889,000.00 secured by a property 5] valued at $1,500,000.00. In other words, there was surplus value 6 || potentially in excess of $610,000.00. 7 The court, agreeing with the majority view and declining to 81} follow Reswick, ruled that the § 362(c) (3) (A) 30-day stay termination did not extend to property of the estate and that the 10 | subject property remained property of the estate that the chapter trustee could liquidate. Rinard, 451 B.R. at 14-20.'° 12 Among other things, it noted that the foreclosing creditor 13} could obtain a windfall by way of obtaining title through a 141} nonjudicial foreclosure at the expense of other creditors if the chapter 7 trustee was not able to administer the subject 16 |} property. Rinard, 451 B.R. at 20. 17 Noting that the opportunity for a windfall would incentivize 18 || a creditor race to the courthouse that bankruptcy is designed to 19 |} obviate, the Rinard court reasoned the ensuing race would 20} contravene key premises of federal bankruptcy law favoring a 21 22 ‘Rinard did not, and was not required to, follow the BAP Reswick decision, which suffers from tunnel vision defects 23 including disregard of chapter 7 and of $§ 362(c) (1) & (h). Rinard, 451 at 20-21. In appeals before it, the Ninth Circuit follows its own precedents so as to promote consistency. Thus, appellants facing adverse BAP precedent often elect to route appeals through the District Court, which is not bound by 26 the BAP. The reason that BAP decisions are de facto influential, even though not de jure controlling, is that the Court of Appeals 27 |) and District Courts often agree with and adopt BAP analysis. This reality dictates sobriety when bankruptcy judges question 28 | BAP precedents. Nonetheless, as Reswick shows, the BAP is fallible. Rinard is correct. 26
1 fresh start for an honest debtor and equal treatment among 2 classes of creditors. Rinard, 451 at 19. 3 4 IX 5 Is there a way to harmonize the chapter 13 minority view 6 with chapter 7? Not really. 7 One might attempt to draw a distinction between property of 8 the estate under the control of a chapter 7 trustee and property 9 of the estate under the control of a debtor in possession in 10 chapter 11 or 13. But such an effort seems doomed to create more 11 problems than it resolves. 12 13 A 14 A basic problem is that a firm boundary between chapter 7 15 and chapters 11 and 13 cannot be drawn. Every chapter 11 and 13 16 case has the potential to be converted to chapter 7 by court 17 order. Upon conversion, a chapter 7 trustee would come into 18 control of property of the estate. 19 If the stay has previously been terminated under § 362(c)(3) 20 with respect to property of the estate, then the trustee would 21 still have been shorn of a key tool going forward. Moreover, any 22 stay-violating activity that may have occurred between the date 23 of the § 362(c)(3) 30-day termination and the subsequent 24 conversion would be more difficult to correct. 25 26 B 27 It may be objected that it is inconvenient, once the stay 28 has terminated “with respect to the debtor,” for a creditor to 1 need to overcome the stay protecting property of the estate. 2 Congress answered that objection by creating, in tandem with 3 § 362(c)(3), a remedy in the form of the § 362(j) motion to 4 confirm that the automatic stay has terminated. In chapter 11 5 and 13 cases in which the debtor is in possession, the § 362(j) 6 motion enables the court to police whether any argument by the 7 debtor based on property of the estate is a mere pretext. 8 In chapter 7 cases, trustees may stipulate to stay relief or 9 to abandonment of property that is burdensome or of 10 inconsequential value and benefit to the estate so as to avoid 11 needless expense.17 12 13 Conclusion 14 The phrase “shall terminate with respect to the debtor” in 15 § 362(c)(3) cannot be construed by inference to extend to “with 16 respect to the estate and property of the estate” because the 17 consequences in chapter 7, to which § 362(c)(3) also applies, are 18 so far at odds with basic chapter 7 administration that Congress 19 would not have intended such dramatic consequences without 20 unambiguous explanation. 21 The putative safety valve at §§ 362(c)(3)(B) and (C) 22 establishes a regime in terms of time and proof that is 23 impossible for a chapter 7 trustee to satisfy. 24 25 26 17There is no filing fee for a stipulation for court 27 approval of an agreement for relief from a stay or for a trustee’s Fed. R. Bankr. P. 6007(a) notice of proposed 28 abandonment. 28 U.S.C. § 1930, Bankruptcy Ct.Misc. Fee Schedule, Item 19 (Sept. 1, 2018). 1 Congress well knew how to terminate the automatic stay with respect to property of the estate and, actually did so in plain 3} language at § 362(h), which was enacted as part of the same Act of Congress that enacted § 362(c) (3). 5 The safety valve at § 362(h) (2) is tailored to the needs of 61a chapter 7 trustee. 7 The asymmetry between § 362(c) (3) and §$ 362(h) further confirms that Congress did not intend the phrase “with respect to the debtor” to sweep in the estate and property of the estate. 10 An appropriate order will issue granting the chapter 7 11 |} trustee’s § 362(h) (2) motion regarding personal property of the 12 estate and denying the relief requested regarding real property 13 || because § 362(c) (3) does not terminate the automatic stay 14 || protecting property of the estate. 15 16 || patea: May 11, 2020 17 i 19 United States Bankruptcy Judge 20 21 22 23 24 25 26 27 28