Some BAPCPA Decisions from October/November 2005

Below is a roundup of recent cases interpreting BAPCPA's new additions to the Bankruptcy Code. Judge Mark recently noted (referenced here) that BAPCPA "is not a model of clarity." Similarly, Judge Isgur recently said (see below) that BAPCPA can be "particularly difficult to parse and, at worst, virtually incoherent." We hope that these periodic BAPCPA decisional updates don't suffer from the same malady and help you sort through BAPCPA's legal thicket.

Below you'll find case summaries on the following BAPCPA-related decisions from bankruptcy courts around the nation:

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BAPCPA - Automatic Stay - Serial Filers: In re Montoya, 2005 WL 3160532 (Bankr. D. Utah, 11/23/05).

BAPCPA - Automatic Stay - Serial Filers: In re Charles, 332 B.R. 538 (Bankr. S.D. Tex., 11/4/05).

BAPCPA - Bankruptcy Petition Preparers: Martini v. We the People Forms and Service Centers, USA, Inc. (In re Barcelo), 2005 WL 3007104 (Bankr. E.D.N.Y., 10/24/05).

BAPCPA - Credit Counseling - Exigencies: In re LaPorta, 2005 WL 3078507 (Bankr. D. Minn., 10/27/05).

BAPCPA - Homestead Exemption - "As a Result of Electing" Debate: In re Virissimo, 332 B.R. 208 (Bankr. D. Nev., 10/31/05).

BAPCPA - Homestead Exemption - Fraudulent Intent: In re Maronde, 332 B.R. 593 (Bankr. D. Minn., 11/8/05).

BAPCPA - Utilities - Adequate Assurance: In re Lucre, Inc., 2005 WL 3111078 (Bankr. W.D. Mich., 11/9/05).

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BAPCPA - Automatic Stay - Serial Filers: In re Montoya, 2005 WL 3160532 (Bankr. D. Utah, 11/23/05). The Court held that a debtor could not overcome the presumption against it under BAPCPA's new section 362(c)(3)(C) that its serial filing was in good faith. As such, the Court would not extend the protections of the automatic stay to the debtor, which terminates under BAPCPA's new section 362(c)(3)(A) (except as to a chapter 7 debtor) 30 days after the petition date. As to what constitutes "good faith" (or lack thereof) under Code section 362(c)(3)(C), the Court said:

To determine the substance of what it means to file a case in good faith as to the creditors to be stayed, the Court must draw upon prior cases interpreting the phrase "good faith" because Congress was presumptively aware of such case law when it used the term in BAPCPA. It has long been the rule that absent clear Congressional intent to the contrary, judicial interpretations of prior law are determinative when concepts, words, or statutory sections are adopted in an amended law on the same subject. But the standard used to determine if a case is filed in good faith may differ depending upon the chapter involved. In Chapter 13, a good faith filing standard is applied to § 1307 conversion or dismissal.

The case sure looks rightly decided given that the case was refiled six days after the debtor's previous chapter 13 case had been dismissed based on the debtor's having made only one plan payment in several months. As the next case shows, however, given the statutory presumption that a serial petition was filed in bad faith, overcome only by a debtor's showing of "good faith" by "clear and convincing evidence," BAPCPA's burdens are readily apparent.

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BAPCPA - Automatic Stay - Serial Filers: In re Charles, 332 B.R. 538 (Bankr. S.D. Tex., 11/4/05). Bankruptcy Judge Marvin Isgur continues writing his pathbreaking opinions interpreting BAPCPA (also referenced here and here). In this case, Judge Isgur addresses (as in Montaya, above) the right of a serial filer to obtain an extension of the automatic stay beyond the 30 day statutory limitation imposed on serial filers under BAPCPA's new section 362(c)(3)(A). As noted above, the statute permits a continuation of the automatic stay past 30 days only if the serial filer can prove its "good faith" by "clear and convincing evidence."

Of significance here in this case is Judge Isgur's unwillingness to even consider extending the protections of the automatic stay in favor of a serial filer to "all creditors" without an explicit explanation in the motion of why the stay should be so extended. The Court wrote:

[T]he motion seeks an extension of the automatic stay as to all creditors, but does not set forth a reasoned basis to extend the stay as to any creditor other than Citifinancial Mortgage Company. Congress has authorized this Court to extend the automatic stay "as to any or all creditors." The relief can be granted only on motion and only after notice and hearing. The present motion gives inadequate notice as to why the automatic stay should be extended against all creditors. Conversely, notice is given of the basis for the relief against Citifinancial Mortgage Company. Accordingly, the debtor will receive a hearing on that portion of the request. If the debtor believes an extension of the stay is warranted against additional creditors, the debtor must replead with sufficient allegations to place those creditors on fair notice of the issues that will be addressed at the hearing....

[T]his is the first motion of its kind filed in this Court under the new Act. The Court notes that the relevant provisions in the Act are, at best, particularly difficult to parse and, at worst, virtually incoherent. Creditors may be unfamiliar with this new provision and the requirements imposed by Congress. Consequently, it is of particular importance under these circumstances that creditors be given abundantly fair warning that their right may be adversely affected.

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BAPCPA - Bankruptcy Petition Preparers: Martini v. We the People Forms and Service Centers, USA, Inc. (In re Barcelo), 2005 WL 3007104 (Bankr. E.D.N.Y., 10/24/05). Here, the US Trustee and a large bankruptcy petition preparer ("BPP") stipulated to entry of final judgment (effective in the entire NY Metropolitan area and all of Connecticut) setting the parameters of the BPP's business under Bankruptcy Code section 110, as amended by BAPCPA's provisions relating to "debt relief agencies."

In permanently enjoining the BPP "from engaging in the unauthorized practice of law," it virtually eliminates all oral communications between the BPP and a customer, and most written communications as well (except official bankruptcy forms). It also prohibits the BPP from "[p]roviding any bankruptcy-related services other than typing" offical forms and from "using the words 'legal,' 'law,' or 'lawyer,' 'attorney,' or any varations thereof, in advertising bankruptcy services in the print media, broadcast media, or the Internet." The order also requires the BPP to take a number of affirmative steps, including posting of signs, providing customers with disclaimers, and the like.

Here's another good example of the BAPCPA's overreaching provisions. While it's easy to dismiss BPP's as societal dregs deserving of extreme "gag" orders, one really has to wonder whether they a just an unconstitutional denial of free speech rights. See, e.g., Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr. L. J. 571 (2005).

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BAPCPA - Credit Counseling - Exigencies: In re LaPorta, 2005 WL 3078507 (Bankr. D. Minn., 10/27/05). Here, the Minnesota bankruptcy court dismissed a pro se chapter 7 petition where the debtor failed to meet the credit counseling requirements of BAPCPA's Section 109(h)(1) and, in lieu thereof, to submit a certification describing the "exigent circumstances that merit a waiver" of the prepetition credit counseling requirement. In so doing, the Court noted:

The Debtor never states that she actually made a request to an approved agency for credit counseling services, let alone that she was unable to timely obtain such services after such a request. She only states that she made a Website search, and then concluded in isolation that she could not afford to travel to the approved agencies that she identified through that search, for an in-person briefing and counseling.

The Court didn't appear happy with the result, which it called "harsh," but said that "none other is possible under [BAPCPA]." It concluded:

As hard as it may fall on the Debtor here, that is the only possible outcome given the content of her submissions to the court. It is unmistakable that Congress intended to make credit counseling a non-waivable prerequisite for going forward in bankruptcy. This court has no authority to ignore that intent, or to rule contrary to it. Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980) (statutory language must be regarded as conclusive, absent "a clearly expressed legislative intention to the contrary," and the courts must apply it as such).

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BAPCPA - Homestead Exemption - "As a Result of Electing" Debate: In re Virissimo, 332 B.R. 208 (Bankr. D. Nev., 10/31/05). Previously, we discussed the case of In re Virissimo, 332 B.R. 201 (Bankr. D. Nev., 10/31/05), where Judge Linda B. Riegle of the Bankruptcy Court for the District of Nevada sided with Judge Robert Mark, Chief Bankruptcy Judge of the Bankruptcy Court for the Southern District of Florida, in the debate (referenced here) between Judge Mark and Arizona's Judge Haines regarding whether BAPCPA's limitation on the homestead exemption, as set forth in § 522(p) to the Bankruptcy Code, limits the amount that a resident debtor can claim as exempt as "homestead" property under state law if the debtor has not owned the property for more than 1215 days and did not previously own property in the state. Judge Riegle held that the phrase "as a result of electing," as used in BAPCPA's new Code section 522(p), did not limit the applicability of the homestead cap by making it applicable only to debtors in states that have not opted out of the federal bankruptcy exemptions.

In this second opinion in the case, issued as a companion to the first opinion, Judge Riegle put her decision on a fast track by certifying for decision by the 9th Circuit the question of "[w]hether the amendments made by BAPCPA to 11 U.S.C. § 522(p), which limit the amount of the homestead available to those who have owned their homestead less than 1215 days, are applicable to Nevada debtors." Judge Riegle reasoned that certification of this question was especially appropriate given her and fellow 9th Circuit Bankruptcy Judge Haines's directly conflicting opinions on the issue. She stated:

This court fully recognizes and appreciates the work done by, and expertise of, the bankruptcy appellate panel and the district court in hearing and deciding appeals from the bankruptcy court. This court is also fully cognizant of the tremendous workload of the Ninth Circuit Court of Appeals. However, the issue presented in this case is one which will recur in Nevada as well as other districts in the Ninth Circuit and will impact the administration of bankruptcy estates until the issue is ultimately decided. As this involves the statutory construction of a hotly contested provision of BAPCPA and is a matter of first impression, there is no question that the Court of Appeals will ultimately be required to determine the question. Hence not merely one, but all three, of the criteria specified in § 158 exist and justify an immediate appeal in this case. While as set forth in the Memorandum Opinion this court believes that the statute is applicable to Nevada residents and hence limits the amount of homestead which they may claim, another judge in the Ninth Circuit has held to the contrary. Each of our opinions is based upon an interpretation of the federal statute and not merely differing applications of our respective state statutes.

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BAPCPA - Homestead Exemption - Fraudulent Intent: In re Maronde, 332 B.R. 593 (Bankr. D. Minn., 11/8/05). The issue in this case is whether the debtor violated BAPCPA's new Code section 522(o) when, days before filing for bankruptcy, the debtor used proceeds from the sale of its truck and trailer to create more equity in his homestead (and thereby converting assets from non-exempt to exempt). Under new Code section 522(o), the maximum homestead exemption is reduced to the extent that it was increased or procured (within 10 years of the petition date) with an "intent to hinder, delay, or defraud a creditor."

In interpreting whether the debtor acted with such intent (i.e., when a "pig become[s] a hog"), the Court looked to the Code's fraudulent transfer provisions for help, saying:

The similarities may suggest parallel analysis. If so, cases that have struggled with exemption planning, and when it is that a 'pig become a hog,' will retain their currency. If more than the bare conversion of assets is required in a particular jurisdiction for exemption planning to cross the line for purposes of subsection, the 727(a)(2) courts may well require a similar additional quantum of facts in order to trigger application of § 522(o). It is elemental developed case law, moreover, that similar words within one statutory body of legislation should, where reasonable, be interpreted with the same meaning. In short, since direct evidence of wrongful intent is rarely forthcoming, the court may infer such intent from evidence of the several badges of fraud and the "circumstances surrounding the transfer." The presence of several or more "badges of fraud" gives rise to a presumption of fraudulent intent. (Citations omitted).

In the end, the Court found that the requisite intent had been established, stating:

[A]n inference of intent to hinder, delay and defraud creditors is inescapable. Many of the badges of fraud are present.... Because Debtor transformed non-exempt assets into exempt assets within the time period provided and with the requisite intent to hinder, delay, and defraud his creditors, his homestead exemption to the extent of the transfer of $18,750.46 is denied and the trustee's objection sustained.

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BAPCPA - Utilities - Adequate Assurance: In re Lucre, Inc., 2005 WL 3111078 (Bankr. W.D. Mich., 11/9/05). Here, a chapter 11 debtor, which filed its petition four days after BAPCPA became effective, sought to enjoin certain utilities from discontinuing service after 30 days because the providers failed to respond to the debtor's offers of adequate assurance.

The Court held that "utility service" under BAPCPA's new Code section 366(c) (which can be discontinued after 30 days absent adequate assurance of payment) refers only to traditional utility services that a debtor consumes (as opposed to services obtained under an interconnection agreement, for example). It also held that it had no discretion to extend the injunction against such traditional utilities beyond the 30 days allowed by statute simply because the utility providers failed to respond to debtor's offers of adequate assurance.

As to the apparent stranglehold over a debtor the stringent provisions of section 366(c) vests in an uncooperative utility who won't agree to the debtor's proposals, the Court noted that there was little it could do to provide relief to the debtor absent agreement among the parties. The Court stated:

Debtor requests that I continue the subsection (a) injunction with respect to Consumers Energy, Sprint and IXC notwithstanding subsection (c) because of their failure to respond to its offers of adequate assurance. However, subsection (c) does not give me that discretion, for it clearly requires as a condition to continuing the injunction either the utility's acceptance of the adequate assurance offered by the Chapter 11 trustee or debtor in possession or the Chapter 11 trustee's or debtor in possession's acceptance of the adequate assurance offered by the utility. Granted, subsection (c)(3) does give the trustee or debtor in possession the right to have the adequate assurance payment modified by the court. However, that right arises only after the adequate assurance payment has been agreed upon by the parties. In other words, the trustee or debtor in possession has no recourse to modify the adequate assurance payment the utility is demanding until the trustee or debtor in possession actually accepts what the utility proposes.

Still, the Court provided some small measure of hope to future debtors, who might perceive efforts to enjoin utilities from exercising their rights under Code section 366(c) as a "fool's errand," saying:

Therefore, Debtor's request with respect to [the traditional utilities] is denied ... [as they] ... are clearly utilities entitled to the protections afforded by new subsection [366](c). Denial of Debtor's request is without prejudice to whatever right Debtor may later have to enjoin either of those entities from exercising its rights under subsection (c). At first blush, such an effort would appear to a be a fool's errand. However, the Sixth Circuit recently concluded that "good faith" may be implied in what would otherwise appear to be an absolute right to convert a bankruptcy case from Chapter 7 to Chapter 13 pursuant to 11 U.S.C. § 706(a). Consequently, a similar good faith requirement might also exist with respect to a utility's exercise of its rights under subsection (c). That is, subsection (c) could be read to require a utility to bargain in good faith with the trustee or debtor in possession before electing to discontinue service thereunder. (Citation omitted).

Finally, the case also is the first to address the oft-discussed (but never judicially interpreted) ambiguity in Code sections 366(b) and (c) regarding the 10 day "gap" between the 20 days of automatic protection afforded by subsection [366](b) and the 30 days of automatic protection afforded by subsection [366](c)." The Court stated:

Subsections (b) and (c) are not mutually exclusive. That is, a utility that is permitted to discontinue "utility services" under subsection (c) may also choose to discontinue "utility services" under subsection (b) if the debtor does not offer adequate assurance of payment as required by subsection (b). Granted, the protection afforded the debtor under subsection (b) is only an additional 10 days. However in the instant case, it is 10 days of protection that Debtor desires.... Debtor must look to subsection (c) if it wishes to extend the subsection (a) injunction against [the traditional utilities] beyond the 30th day.

© Steve Jakubowski 2005

Written By:Mitch On October 4, 2007 10:28 PM

I have a question regarding the interplay between section 362(a) and 108(b). Does section 108(b) grant a debtor an extension of 60 days by the mere filing of a new bankruptcy when the debtor was subject to a prospective relief order which stated that the automatic stay would not go into effect regarding debtor's residence if a future bankruptcy was filed. The debtor filed three previous petitions including one that was dismissed in the preceding year (also triggering the termination of the stay under section 362(3)(c)after 30 days. The debtor did not seek to reimpose the stay at any time during the new bankruptcy. Debtor claims he has an automatic right to redeem his real property that was sold at a sheriff sale because he filed his bankruptcy within the state statutory period to redeem (10 days.

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