No Stay in Effect where Co-Debtor Had Two Previous Cases within Year of Filing

Posted by NCBRC - January 13, 2022

No stay arose in the bankruptcy case as to either the debtor husband or the debtor wife, where the husband had filed and dismissed two cases in the preceding year, in which the wife had not joined, and then the husband and wife filed the present joint case. In re Koval, No. 1:21-bk-11170 (Bankr. C.D. Cal. Nov. 10, 2021).

The debtor and her husband filed for chapter 13 bankruptcy on May 26, 2021 in the Southern District of California. At that time, the debtor-husband had two bankruptcies he had filed and dismissed within the previous year. The second of the two bankruptcies was dismissed on May 25, 2021, with a 180-day bar to refiling. The debtor-wife had no previous bankruptcies. The co-debtors moved the court for an order stating that the stay was in effect in their case. The court found that, due to his prior bankruptcy filings, the stay was not in place with respect to the debtor-husband. It made no finding with respect to the debtor-wife. The case was then transferred to the Central District of California and debtor-husband was dismissed as a debtor due to the 180-day filing bar.

Roel Enterprises, the holder of a second position deed of trust on real property securing a loan taken out by the debtor’s husband, moved the bankruptcy court for an order to the effect that the automatic stay was not in place in the current chapter 13 case. The debtor opposed Roel’s motion arguing that the property was community property and that it was necessary to her chapter 13 reorganization plan.

In finding that no stay was in effect with respect to the property, the bankruptcy court relied on the plain language in section 362(c)(4)(A), which provides:

“(i) if a single or joint case is filed by or against a debtor who is an individual under this title, and if 2 or more single or joint cases of the debtor were pending within the previous year but were dismissed, other than a case refiled under section 707(b), the stay under subsection (a) shall not go into effect upon the filing of the later case; and
(ii) on request of a party in interest, the court shall promptly enter an order confirming that no stay is in effect[.]”

The debtor argued that the provision was ambiguous when read in conjunction with section 362(c)(3)(A) which deals with a debtor who has had one case dismissed within the previous year. That provision states that the stay “shall terminate with respect to the debtor on the 30th day after the filing of the late case.” Here, the debtor argued that the fact that this section terminates the stay “with respect to the debtor” rather than with respect to property of the estate, suggests that the stay did not terminate with respect to the property at issue here.

The court disagreed, finding that the different language in section 362(c)(3)(A) reinforces its conclusion that, in section 362(c)(4)(A)(i), Congress intended to impose more severe consequences on a debtor who has filed and dismissed two or more bankruptcies within one year of the current filing. Unlike paragraph (c)(3)(A) where the stay is terminated, under the plain language of section 362(c)(4)(A), the automatic stay in this case was never in place. The court added that “[t]here is no exception that can be read into the statute to permit a stay if you add another debtor.”

The court granted Roel’s motion for an order confirming that the stay was not in effect.

The debtor has appealed this case to the district court, In re Koval, Case No. 2:21-cv-9568 (C.D. Cal. filed Dec. 9, 2021).

Koval Bankr CD Cal Nov 2021


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