Extension of Stay Applies to Creditor Who Was Not Served with Motion

Posted by NCBRC - February 6, 2023

The bankruptcy court properly exercised its discretion to grant an extension of stay in the debtor’s second chapter 11 case where the case was filed in good faith as to the creditors to be stayed even though one of the creditors to which the stay applied was not served with the motion. FourWs, LLC. V. Miller, No. 21-1273 (E.D. Cal. Jan 30, 2023).

The debtor filed chapter 11 bankruptcy in 2019, but the case was dismissed two months later after his counsel missed deadlines and otherwise failed to represent him adequately. Less than one year later, he filed a new, pro se, chapter 11 case. Three days after filing the second case, the debtor moved for an extension of the automatic stay under section 362(c)(3)(B). He was unaware of FourWs as a potential creditor and did not serve them with the motion. The court held a hearing and granted the motion to extend the stay.

FourWs then learned of the bankruptcy and filed a proof of claim. It also sued the debtor in state court on the promissory note. A month later, the trustee moved to dismiss the debtor’s case as having been filed in bad faith. The bankruptcy court granted the trustee’s motion. The state court dismissed FourWs motion, and FourWs moved to reopen the bankruptcy case seeking a ruling that the automatic stay expired as to them 30 days after the debtor filed his bankruptcy petition. The bankruptcy court denied the motion, and FourWs appealed to the district court.

Section 362(c)(3)(B) provides that on a motion by a party in interest, and “upon notice and a hearing,” the bankruptcy court has broad discretion to extend the stay so long as “the filing of the later case is in good faith as to the creditors to be stayed.” The debtor must move for the extension and the hearing must be held within 30 days of the bankruptcy petition. In Morris v. Peralta (In re Peralta), 317 B.R. 381, 389 (B.A.P. 9th Cir. 2004), the Peralta panel emphasized that, once granted, the extension applies to unknown creditors regardless of notice.

The district court here found that, under section 102(1) the “notice and hearing” requirement means notice and hearing that are “appropriate in the particular circumstances.” Because of the 30-day time limit for dealing with motions to extend stay, the bankruptcy court must act quickly. The court observed that “Miller gave two weeks’ notice to creditors of the hearing, filed proof of service within three days of filing his petition, and appeared to be acting in good faith.” It found that the bankruptcy court reasonably concluded that the notice and hearing were appropriate.

The court found two cases cited by FourWs were distinguishable on their facts. In In re Bronson, No. 09-46592, 2010 WL 9485976, at *1 (Bankr. E.D. Cal. Jan. 4, 2010), the debtor noticed creditors by regular mail only a few days before the hearing, and in In re Collins, 334 B.R. 655, 656 (Bankr. D. Minn. 2005), the debtor served notice on the interim trustee but did not serve the creditors. The court here found that the bankruptcy court gave appropriate consideration to the due process rights of the creditors. Finally, the court noted that FourWs had the option to move for relief from stay under section 362(d) or (f) if there was a reason the stay should not be applied to them.

The court affirmed.

Miller ED Cal Jan 2023



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