Early Termination Provision Does Not Apply to Estate Property

Early Termination Provision Does Not Apply to Estate Property

In another twist on the evolving interpretation of BAPCPA, a court in Texas has ruled that failure to extend the automatic stay in a subsequent filing does not affect property of the estate that is not claimed by the debtor as exempt.   In re Scott-Hood, No. 11-53580 (Bankr. W.D. Tex. 6/15/12), which can be found here.

In the Scott-Hood case, the Debtor had one prior chapter 13 case dismissed and then filed a new chapter 13 proceeding.   However, the Debtor did not request an extension of the automatic stay pursuant to section 362(c)(3).     JP Morgan Chase Bank filed a Motion for Order Confirming Termination of Automatic Stay which was granted.   The Debtor then filed a motion for reconsideration arguing that section 362(c)(3) was limited to property of the Debtor, not property of the estate.    The Court ultimately agreed.

According to section 362(c)(3)(A), failure to request extension of the stay in a subsequent case means that:

(T)he 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.

Because the Debtor did not file a motion to extend the automatic stay, it was necessary for the court to determine what the consequence under section 362(c)(3)(A) was.    The Court noted that there was a split in the cases as to whether the stay terminated as to all property or just the debtor's property.    The Court noted that this was important in the San Antonio Division of the Western District of Texas because the Standing Order for Chapter 13 cases provides that upon confirmation, property does not revest in the Debtor.   The Court noted:

Thus, in the San Antonio Division of the Western District of Texas, where property of the bankruptcy estate encompasses all property of the debtor as of filing, plus all property acquired post-petition and earnings from services performed post-petition, (citation omitted), an early termination of the stay under section 362(c)(3)(A) could be meaningless.  

 Opinion, p. 3.

After an analysis of the statutory text and legislative history, the Court concluded that the statute meant exactly what it said:  "with respect to the debtor" was limited to the debtor's property, not the estate's property.

The result reached by the foregoing textual analysis may be less than optimal.   The fact that the scope of relief is less robust than creditors who lobbied for this legislation might have hoped for, however, is not reason to conclude that the statute is "truly absurd."    It has meaning.   It just doesn't have the meaning that the creditor wants it to have.   So it often is with statutes.  They fail to deliver on the expectations of those who zealously worked for their passage.    By the same token, however, the statute does deliver more relief, in this court's view, than the majority view says it delivers.   That too is but another consequence of the way the statute is written and how it intersects with the rest of the Bankruptcy Code.   The court's job is not to select the optimal policy outcome but to discover the intent of the drafters of the legislation to the extent that can be done with the interpretive tools available. . . . 

After reviewing both the plain language of the statute itself, as well as its narrow context within section 362 and its broader context within the Bankruptcy Code, the court concludes that section 362(c)(3)(A) terminates the stay only with respect to the debtor individually, with respect to the debtor's exempt property that stands as collateral for a debt of the debtor, and with respect to certain leases.   It does not terminate with respect to property of the estate.

Opinion, pp. 7-8. 

This result will provide a lot of relief to chapter 7 trustees and some relief to less than diligent debtor's attorneys.   For chapter 7 trustees, who may not see a case until 30 days after it is filed, it means that they do not lose control over non-exempt assets that are subject to a lien but may have equity.  

For debtor's lawyers who may not be aware of this new provision (it is not even seven years old so far) or who fail to catch a prior case, the benefit may be less dramatic.   Debtors typically file chapter 13 to protect their exempt property, such as homes and cars.     Under Judge Clark's ruling, exempt property of the debtor is still subject to early termination of the stay.   However, there is an interesting quirk here.   All property of the debtor, including exempt property, initially enters the estate.   It is only when an exemption becomes final that the property leaves the estate.   Consider this scenario:   a debtor files a subsequent case and claims his truck as exempt.   However, he does not file a motion to extent the stay.   At the conclusion of 30 days, the stay terminates.   However, the truck is still property of the estate.    The property will not leave the estate until 30 days after the first meeting of creditors at the earliest.    If the debtor's attorney realizes his mistake during the period between 30 days after the petition date and the date that exemptions become final, he can simply amend his exemptions to delete the exemption.   In that instance, the property remains property of the estate and the early termination clause never takes effect.

Lexis.com subscribers can access Lexis enhanced version of the In re Scott-Hood, 2012 Bankr. LEXIS 2762 (Bankr. W.D. Tex. June 15, 2012) opinion with summaries, headnotes, and Shepard's.

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