One of the benefits of filing a bankruptcy petition is that at the moment a debtor files the petition, something goes into effect that is called the “automatic stay.” The automatic stay is a preventative, a “prohibition,” if you will, against most creditors taking any action against the debtor to collect a debt. The creditor cannot call you, write you, sue you, continue to sue you if they have sued you, or foreclose on or repossess property. This gives the debtor time to work out his or her financial issues without continued creditor pressure. This also prevents creditors from basically “pulling a fast one” on the debtor, such as telling the debtor that the creditor is considering a modification proposal for the mortgage, and then turning around and starting the foreclosure anyway. Some creditors or proceedings are not subject to the automatic stay. A complete list of persons and proceedings not stayed can be found in Section 362(b) of the Bankruptcy Code, and include things like child support not being taken from property of the bankruptcy estate, the duty to file tax returns, and criminal proceedings.
But there are other instances in which the automatic stay may not go into effect, and such instances include those involving debtors who file multiple petitions within a short period of time. Section 362(c) of the Bankruptcy Code sets out the deficiencies of the automatic stay when the debtor has filed one or more cases within a year prior to the filing of the new case. If one case has been filed and dismissed, the automatic stay goes into effect for only 30 days during which time the debtor must file a motion with the court to extend the stay to some or all creditors after the initial 30 day period. Notice of the motion must be given to creditors and a hearing must be held within the 30 days by the court. In order to obtain an extension of the stay beyond the 30 day initial period, the debtor must demonstrate that the second filing was made in “good faith.”
If two or more cases had been filed by the debtor within the one year period preceding the filing of the present case, then no automatic stay, even for 30 days, will go into effect and the debtor must demonstrate good faith by “clear and convincing evidence” overcoming a rebuttable presumption that the second filing was in bad faith. No stay is in effect at all upon the filing of the later case, and a hearing must be held resulting in a favorable court ruling before one does. And it goes into effect, if at all, only at the time of the order of the court and does not relate back to the date of the filing of the petition.
Judge J. Michael Deasy of the U.S. Bankruptcy Court for the District of New Hampshire addressed these issues in an opinion issued on January 17, 2014. In the case of In re James, Bk. No. 13-12924-JMD (2014 BNH 002-an unreported opinion), Judge Deasy addressed the effectiveness and imposition of the automatic stay involving the case of a “serial” filer, i.e. a debtor who filed multiple bankruptcy petitions in Chapter 13 over a one-year period. Without going into the detailed and complicated fact situation of that case, which generally involved a debtor attempting to pay significant family support arrears in a Chapter 13 plan contrary to a Massachusetts Probate Court, Judge Deasy focused on the statutory requirements of the bankruptcy code. He noted that in order to rebut the presumption by clear and convincing evidence that the current filing was in bad faith, the debtor had to show that he had acted honestly and in good faith, that there had been a “substantial change in his financial or personal circumstances” from the previous filing,and that he was likely to confirm and perform a Chapter 13 plan. He pointed out that a debtor attempting to unfairly manipulate the bankruptcy code was not entitled to continue to use the code for that purpose.
So, in some cases, the automatic stay is not “automatic.” If the debtor has filed a case within the past year that has been dismissed, the automatic stay only goes into effect for 30 days pending a further ruling by the court on a timely-filed motion. And the automatic stay does not go into effect at all upon the filing of a third (or subsequent) case and may never go into effect unless the debtor can convince the court that the multiple filings are not just a nefarious attempt to “game” the system.