Recent case development: Termination of the Automatic Stay – Section 362(c)(3)(A)

Case: Leland S. Smith, Jr. v. Maine Bureau of Revenue Services, No. 18-1573 (1st Cir.)
Opinion by: Circuit Judge Sandra Lynch
December 12, 2018

The debtor filed three bankruptcy petitions under Chapter 13 of the Bankruptcy Code. In December 2016, he filed his third petition just two months after the dismissal of his second filing. This triggered § 362(c)(3)(A) which provides that when a debtor files a bankruptcy petition within one year after the dismissal of a prior petition, the automatic stay will terminate after 30 days if no extension is granted by the court. 11 U.S.C. § 362(c)(3)(A).

Among his debts, the debtor owed $51,596.53 in state taxes, interest, and penalties to Maine’s Bureau of Revenue Service (“MRS”). There was no request for an extension of the stay, and on January 27, the 30-day period had expired. At a February 2017 bankruptcy court hearing, MRS moved for an order pursuant to § 362(j) to confirm the extent to which the stay had been terminated.

The debtor argued that the phrase “with respect to the debtor” in § 362(c)(3)(A) plainly and unambiguously terminates the stay “only as to actions against the debtor and his property, not as to actions against the property of the bankruptcy estate.” Conversely, MRS argued that the scope of § 362(c)(3)(A) is not limited to just the debtor and his property, but that it terminates the stay for all purposes.

The Bankruptcy Court for the District of Maine ruled that the automatic stay had terminated in full, and the U.S. District Court of Maine affirmed that decision. The U.S. Court of Appeals for the First Circuit then reviewed the bankruptcy court’s decision de novo.

In affirming both lower court rulings, the First Circuit held that “§ 362(c)(3)(A) terminates the entire stay thirty days after the filing of a second petition.”

The Court rejected the debtor’s argument that the language of the statute is plain since “the language at issue could have different meanings.” The Court relied on King v. Burwell, which warns courts against rigorous application of interpretive canons—including the plain meaning rule—where provisions may be “inartfully” drafted. King v. Burwell, 135 S. Ct. 2480, 2492 (2015). The Court applied King because § 362(c)(3)(A) is imprecise in that it is a “collection of ‘with respect to’ phrases, and it is not obvious how the phrases relate to each other, or how the phrases connect to other related provisions.”

Since the text of § 362(c)(3)(A), including the phrase “with respect to the debtor,” did not support or completely dispose of either party’s arguments, the Court looked to the “statutory context, and Congress’s intent in enacting the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and § 362(c)(3)(A).”

The Court opined that in enacting BAPCPA, Congress intended to discourage bankruptcy abuse, in particular bad faith repeat filings for no valid purpose other than to trigger the automatic stay. This outcome, the Court concluded, can best be achieved by reading § 362(c)(3)(A) to terminate the stay in full.

Summary Prepare By:
Carlos Loredo
Candidate for Juris Doctor, May 2019

Read the Full Case Here: