Debtor Squeezes Through Loophole and Lands in Dismissal

Posted by NCBRC - July 19, 2022

Where the debtor filed her second chapter 13 petition while her first case was still pending, the automatic stay was not reduced by section 362(c)(3) but, without regard to the debtor’s intent, the second case was an abuse of process and the court could dismiss sua sponte after notice and a hearing. In re Giles, No. 22-14494 (Bankr. S.D. Fla. July 15, 2022).

The debtor had a confirmed chapter 13 plan but she fell behind on plan payments and the trustee indicated that, if she did not cure, the trustee would seek dismissal. Six days later, without curing or waiting for dismissal, the debtor filed a new chapter 13 bankruptcy petition. Assuming the automatic stay would terminate on July 8, 2022, under section 362(c)(3), the debtor moved for an extension of stay. The hearing was set for July 11, 2022, at which time both bankruptcy cases were still pending.

The court began with section 362(c)(3) which provides that if a debtor had another bankruptcy case that “was pending within the preceding 1-year period but was dismissed,” the second case “is presumptively not filed in good faith” and the automatic stay terminates 30 days after the petition date in the second case. The court found that because the debtor filed the second case while the first was still pending, section 362(c)(3) did not apply. The court found, therefore, that the automatic stay would not terminate early in the second case and it denied the debtor’s motion as moot.

Nonetheless, the court went on to consider other ramifications of having two chapter 13 bankruptcies pending at the same time. While neither the Code nor the Bankruptcy Rules prohibit simultaneous bankruptcy petitions, the court noted that in Freshman v. Atkins, 269 U.S. 121, 122–24 (1925), the Supreme Court held that it is generally inappropriate for a party to have two cases pending at the same time.

In In re Saylors, 869 F.2d 1434 (11th Cir. 1989), however, the Eleventh Circuit held that it may be appropriate for a bankruptcy debtor to file a chapter 13 case while his chapter 7 case is still pending in order to reorganize whatever debts survive the chapter 7 discharge. Out of that case, courts developed the “single estate rule” which says that a debtor cannot have two bankruptcy cases pending simultaneously if doing so would result in the same property being part of different bankruptcy estates.

This case failed the same estate rule in that much, if not all, of the property in the first chapter 13 estate would also be part of the second chapter 13 estate. Without finding that the debtor in fact filed the second case in bad faith, the court reasoned that the practical result of simultaneous cases dealing with the same property would be an abuse of process.

The court concluded that “the Second Case cannot proceed and must be dismissed.” It went on to decide that under the authority of section 105(a) it had the power to sua sponte dismiss, but found that, under section 1307(c), it could do so only after notice and hearing.

Giles Bankr SD Fla July 2022

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