The issue in this case, Smith v. State of Maine Bureau of Revenue Services (In re Smith), 18-1573 (1st Cir. Dec. 12, 2018), is whether the automatic stay terminates after 30 days as to the debtor, or as to the property of the estate for cases where this is the Chapter 13 bankruptcy debtor’s 2nd case pending within 12 months (a repeat filer).

If the stay terminates as to the debtor, then creditors are able to collect from the debtor, as if there was no bankruptcy at all.  They can sue, foreclose, garnish wages, freeze bank accounts etc. to be able to satisfy debts owed to them.

If the stay terminates as to property of the estate, the creditors would then still need to do additional work, (ie. Motion to modify the automatic stay) since the bankruptcy estate is generally not returned to the debtor until the end of the Chapter 13 case.

The First Circuit adopted the position of minority of lower courts regarding Section 362(c)(3)(A), in holding that the stay automatically terminates as to debtor, property of the debtor, and property of the estate. The First Circuit said the statute was poorly worded.  Judge Lynch continued that the BAPCPA amendments were drafted to minimize abuses of the bankruptcy code, and that “is best achieved by interpreting Section 362(c)(3)(A) to terminate the entire stay, including estate property.”  The debtor can extend the automatic stay in their chapter 13 bankruptcy case by showing good faith and a positive change in circumstances.   These are routinely granted absent a clear showing of abuse or no change in circumstances, at lest here in Chicago Bankruptcy Courts.   Thus, Judge Lynch held that “the entire automatic stay” terminates 30 days after filing “as to actions against the debtor, the debtor’s property and property of the bankruptcy estate.”

Smith v. State of Maine Bureau of Revenue Services (In re Smith), 18-1573 (1st Cir. Dec. 12, 2018)

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Lets get to it.
A
A is for Automatic Stay.

This falls under Section 362 of the bankruptcy code.  It’s what gives bankruptcy it’s teeth against creditors.   The Automatic stay prevents creditors from taking action against bankruptcy debtors.   It stops the phone calls, it stops the collection letters, it stops the lawsuits.  It stops the garnishments from a debtor’s paycheck.  The automatic stay can help get utilities back on for debtors, it can stop repossession of a car, and even get it back in a chapter 13.  The automatic stay is what stops the foreclosure process too.   Therefore, this is arguably the most important tool in your bankruptcy lawyers arsenal.  It kicks in the instant the bankruptcy case is filed.  Creditors don’t have to get notice either, hence the word “AUTOMATIC.”

To discuss more, you can contact me at www.LeedersLaw.com

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District Court did not err in granting debtor’s motion to enforce automatic stay provisions of bankruptcy code where creditor-pension fund announced to debtor that it would pay debtor his pension benefits, but would withhold said benefits and apply them to existing debt that arose when debtor failed to make required pension contributions to pension fund on behalf of his employees. Pension fund’s unilateral decision to apply pension benefits to existing debt violated automatic stay provisions of section 362 of bankruptcy code. Moreover, pension fund could not apply pension benefits to existing debt due to anti-alienation provisions of ERISA.

This is important to emphasize the power of the automatic stay. It goes beyond just stopping phone calls and collection action. Here, the pension board decided the debtor lost his pension privileges and tried to pay back debt instead of pay the debtor. The court ruled that this is a violation of the automatic stay. I agree. They do not have the right to pay creditors with the debtors funds which were exempt in the bankruptcy estate.

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