Prepared by James A. Dohnalek Jr. Esq. with at Shapiro & Zielke serving Minnesota
11 U.S.C. § 362(c)(3)(A) of the bankruptcy code states that when a debtor had a bankruptcy case pending within the preceding year, and it was dismissed, the automatic stay "shall terminate with respect to the debtor or property securing such debt ... on the 30th day after the filing of [a second] case". There is a split among the bankruptcy courts as to whether this section of the code lifts (i) the automatic stay as to the debtor and the bankruptcy estate, or (ii) just the automatic stay as to the debtor. In the past, the position of the Minnesota bankruptcy courts had been that § 362(c)(3)(A) lifts the automatic stay as to both the debtor and the property of the estate.
Although section § 362(c)(3)(A) appears to be clumsily drafted, the courts found that a legislative intent expressly appears from the structure and content of the Act (In re Charles, 332 B.R. 538 (Bankr. S.D. Tex. 2005)). If a debtor takes a second plunge into bankruptcy within a year of the dismissal of a prior bankruptcy case, the automatic stay in the second case protects the debtor, the debtor's property, and property of the estate for only 30 days after the commencement of the second case. The continuation of protections are available, upon a court motion and only if the movant makes a specific showing. (In re Collins, 334 B.R. 655 (Bankr. D. Minn. 2005)).
This January, a new court interpretation was issued in Minnesota, determining that § 362(c)(3)(A) lifts the automatic stay as to the debtor on the 30th day after filing, but not as to the estate. In re Eull, No. 19-42906 (Bankr. D. Minn. 2020) (see order granting in part and denying in part motion to confirm termination of stay, filed as docket number 16). If the Minnesota bankruptcy court continues to take this position, all other consequent comfort orders issued in this court will not lift the entire stay. Since lifting the entire stay is necessary to proceed with foreclosure, the recent decision essentially makes obtaining § 362(c)(3) comfort orders in Minnesota impractical for creditors. The creditors will need to seek relief through a motion for relief due to a lack of adequate protection, as opposed to a comfort order.
While it remains to be seen if all judges on the Minnesota bankruptcy court chose to interpret § 362(c)(3)(A) in this manner, the decision highlights how the unclear wording of § 362 can cause inconsistent court interpretation. As a result, § 362(c)(3) comfort orders issued by different judges in the same court can render different relief from the stay.
It should be noted that § 362(c)(4) comfort orders which relate to cases of multiple bankruptcy dismissals within the past year are not affected by the new interpretation. Please contact James A. Dohnalek Jr., Associate Attorney at Shapiro & Zielke, LLC at firstname.lastname@example.org for more details and assistance with protecting creditors’ rights in Minnesota bankruptcy courts.
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