by Where a debtor makes serial filings for bankruptcy, the automatic stay is lifted after 30 days only with respect to the debtor and not with respect to property of the estate. Rose v. Select Portfolio Servicing, Inc., No. 19-50598 (5th Cir. Dec. 10, 2019).
Five years after the debtor and her then husband bought their residence, they divorced and the debtor’s husband retained the house on the condition that, if he defaulted on the mortgage, he would transfer ownership to the debtor. He defaulted. Although the house did not actually transfer to the debtor until five years after the last payment on the mortgage, the debtor became actively involved in battle with the mortgage creditor. On four occasions, the creditor set a foreclosure date and the debtor filed for bankruptcy to forestall the sale of the property. The bankruptcy cases were pending for a total of 269 days.
While the fourth bankruptcy case was pending, the debtor filed in state court for quiet title to the property arguing that the state’s four-year statute of limitations on the creditor’s right to foreclose had lapsed. Texas law tolls the running of the statute of limitations when the property at issue is subject to a bankruptcy stay. Here, the statute of limitations began to accrue on March 26, 2014, when the creditor sent the first Notice of Acceleration, and, in the absence of tolling events, would have expired on March 26, 2018. But the creditor did not file its counterclaim for foreclosure until 179 days after March 26, 2018.
The creditor removed the case to district court and filed a counterclaim for foreclosure, arguing that the statute of limitations was tolled for more than 179 days during the debtor’s bankruptcy and, therefore, its claim for foreclosure was timely. The case came before the court on competing motions for summary judgment and the district court found in favor of the creditor.
The debtor appealed to the Fifth Circuit.
While both parties agreed that the statute of limitations was tolled for some amount of time while the bankruptcy stay was in effect, they disagreed as to how to properly calculate the time the automatic stay applied.
The solution to the case hinged on interpretation of section 362(c)(3)(A) which provides, with certain exceptions not relevant here, that if a debtor files a second bankruptcy case within one year of an earlier case that was dismissed, the automatic stay in the new case lifts “with respect to the debtor” after 30 days.
Here, the debtor calculated the period that the automatic stay was in effect based on the time as reduced to 30 days for each bankruptcy after the original one. Under that calculation, the total time the statute of limitations was tolled was 135 days leaving the remaining time sufficient to terminate the statute of limitations. The creditor, on the other hand, calculated the time based on the life of each of the bankruptcy cases, totaling 269 days.
The Fifth Circuit agreed with the creditor’s calculation of the time, stating that section “362(c)(3)(A) terminates the stay only with respect to the debtor; it does not terminate the stay with respect to the property of the bankruptcy estate.” Recognizing that the scope of section 362(c)(3)(A) has been the subject of judicial disagreement, the circuit court agreed with the view expressed by the majority of bankruptcy courts in the Fifth Circuit that the lifting of the stay permits actions against the debtor personally but remains in effect with respect to estate property. In so holding, the court disagreed with those courts such as the First Circuit, that have found that section 362(c)(3)(A) terminates the stay in its entirety.
The court was persuaded in part by the fact that section 362(a) which establishes the stay, has been found to apply to three categories of actions: those against 1. the debtor, 2. the debtor’s property, and 3. the property of the bankruptcy estate. Where Congress specified in section 362(c)(3)(A) that lifting the stay applies “with respect to the debtor,” the court reasoned that Congress did not intend it to apply to the other two categories. The court was persuaded that, had Congress intended to lift the stay in its entirety, it would not have included the language “with respect to the debtor.” In fact, that is exactly what Congress did in section 362(c)(4)(A)(i) where it lifted the stay under specified circumstances without limiting the provision to the debtor only.
The court found that the language of the statute was sufficiently clear to preclude policy considerations concerning potential harm to creditors.
The court affirmed.
The debtor filed a petition for certiorari in the Supreme Court, No. 19-1035, which was denied on June 30, 2020.