Debtor was in a chapter 13 case but couldn’t make plan payments. Case got dismissed. Debtor files a second case within a year. How is the automatic stay affected?
When a debtor files a chapter 13 petition within a year after a prior bankruptcy case was pending but was dismissed, the automatic stay terminates on the 30th day after the new petition is filed. While it is a commonplace practice to request an extension of the stay, there are some pitfalls to be aware of, and I’ve seen debtors lose the protection of the automatic stay because of the attorney’s errors or complacency.
- The hearing on the motion to extend the stay must be completed before the 30th day after the petition is filed. 11 U.S.C. § 362(c)(3)(B).
- The stay can be extended only if the debtor demonstrates that the later case is filed in good faith, 11 U.S.C. § 362(c)(3)(B); BUT –
- There is a statutory presumption that the later case is filed NOT in good faith. 11 U.S.C. § 362(c)(3)(C).
- The presumption can be rebutted by clear and convincing evidence to the contrary. 11 U.S.C. § 362(c)(3)(C). Most often, the evidence will need to show that there has been a substantial change in circumstances since the dismissal of the prior case, and that the debtor will be able to fully perform under the terms of a confirmed plan in the new case. See 11 U.S.C. § 362(c)(3)(C)(i)(III).
Don’t delay. File your motion to extend the stay as soon as you file the petition. Get it set for hearing as quickly as possible, making sure the hearing can be concluded before the 30th day after the petition. Call chambers and ask for a telephonic hearing if necessary.
You have to give notice of the hearing to creditors. If you can’t give 14 days’ notice of the hearing, file a motion to shorten notice (for good reason). Make sure you give good notice to creditors who are repossessing a car, setting a foreclosure sale, garnishing wages, etc., and be prepared to explain to the court how you gave shortened notice (by phone, fax, email, etc.)
In order to rebut a presumption, you need evidence. That is why the court here expects, at a minimum, an affidavit from the debtor, even if no creditor has filed an objection. The attorney’s assurances in the motion that the new case will be successful is not evidence; it’s merely argument. Even if a creditor doesn’t object, the court has to ensure the presumption of “not in good faith” is sufficiently rebutted as required by the statute.
The debtor’s affidavit should be specific and detailed. Don’t use a generic form affidavit where the debtor simply states, “I couldn’t afford my plan payments in the first case but I can afford them now.” Such a statement is not clear and convincing evidence that there has been a substantial change in the debtor’s circumstances.
Read the full text of section 362(c)(3) every time you file a second case within a year of a previous case that was dismissed. It can be a tricky statute to comprehend, and it is much more comprehensive that what I’ve mentioned here.
[In a later post, we’ll talk about what happens if the debtor had two or more dismissed cases within the preceding year of the new petition (hint: there is no automatic stay. 11 U.S.C. § 362(c)(4)).]