NORTHERN DISTRICT OF INDIANA WEIGHS IN ON BANKRUPTCY STAYS FOR REPEAT FILERS UNDER § 362

The Northern District of Indiana recently provided its interpretation of the limits on the bankruptcy stay provision codified at 11 U.S.C. § 362(c)(3)(A). First Financial Bank v. Clark, Case No. 2:18-cv-390 DRL (N.D. Ind. March 19, 2021). Generally, § 362(a) prohibits creditors from bringing claims against the debtor, his property, or the property of the bankruptcy estate once the debtor files a bankruptcy petition.ⁱ The debtor’s bankruptcy petition automatically stays such claims.ⁱⁱ That automatic stay, however, is limited by § 362(c)(3)(A) if the debtor is a “repeat filer,” defined as “debtors with one prior bankruptcy case dismissed within one year of their current bankruptcy filing.ⁱⁱⁱ” In the case of a repeat filer, Section 362(c)(3)(A) provides that “…the stay under subsection [362](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.”^iv

In the Clark case, the debtor (Clark) was a repeat filer. He filed a Chapter 13 case that was dismissed in May 2018 then he refiled in June 2018.^v In August 2018, shortly after expiration of the “30th day” from the filing of the June 2018 bankruptcy, Clark’s mortgagee, First Financial Bank (“FFB”), sought an order from the bankruptcy court confirming the absence of the automatic stay so FFB could proceed with the foreclosure sale of Clark’s real property. The bankruptcy court held that the “stay terminated as to Mr. Clark individually and as to his property” but opined that the automatic stay remained as to “any real property of the bankruptcy estate.” FFB appealed that order to the Northern District.

On appeal the Court framed the issue as follows: “…[W]hether the 30-day automatic stay for repeat bankruptcy filers lapses entirely when that time runs or terminates solely as to the debtor and his property but not as to the bankruptcy estate’s property.” Courts are split on the issue. The Northern District adopted the majority view that § 362(c)(3)(A) “unambiguously terminates the stay solely as to the debtor and his property, without applying the termination to the property of the bankruptcy estate.”^vi In reaching this decision, the Court noted the judiciary’s obligation to apply the plain and ordinary meaning of the statute’s unambiguous text avoiding “absurd results” and aiming to “give meaning to every word in the statute.”^vii

In its analysis, the Court focused much of its attention on the phrase “with respect to the debtor” in § 362(c)(3)(A) noting that “Congress knows full well the difference between the debtor and the estate…” The Court added if Congress intended the stay to terminate as to the estate property, Congress could have added “and the property of the estate” to § 362(c)(3)(A) as it did multiple times in § 362(a)…” The Court explained its task was to “interpret the words of Congress, not add to them.” Comparatively, the Court found the minority opinion, argued by FFB, “effectively invites the court to read “shall terminate with respect to the debtor” the same as “shall terminate,” treating the later part of the phrase as superfluous. The Court noted an interpretation that renders words and phrases superfluous was to be avoided in statutory construction.^viii

The Court concluded § 362(c)(3)(A) only terminated the stay of actions against the debtor and his property; the stay remained in effect as to the property of the bankruptcy estate, including Clark’s real property.^ix The Court affirmed the bankruptcy court.