Once is an Accident ...

The recently issued decision in In re Montoya, __ B.R. __, 2005 WL 3160532 (Bankr. D. Utah 2005) provides a fairly detailed analysis of a debtor's motion to extend the automatic stay under new 11 U.S.C. 362(c)(3)(B). Unfortunately, for the debtor, she was unable to overcome the presumption of a bad faith filing as a result of her unsuccessful prior Chapter 13 bankruptcy, which had been dismissed only six days before filing the new Chapter 13 petition.

In Montoya, the debtor had actually filed three bankruptcies. The first was a Chapter 13 in August 1999, which was converted to Chapter 7 after confirmation when the debtor failed to make plan payments. She obtained a Chapter 7 discharge in November 2000. In August 2004, she filed her second Chapter 13 case, but made only one plan payment over several months and the case was dismissed October 21, 2005. She filed a third case six days later on October 27, 2005. (The saying goes, "Once is an accident, twice is a coincidence, three times is enemy action.") .

On November 2, 2005 the Debtor filed a motion to extend the stay, stating that the filing was in good faith as to all her creditors and that the extension would allow her to prosecute a plan and make payments to her creditors. The motion was served on all creditors, and none objected, although the Chapter 13 Trustee did. After conducting an evidentiary hearing, the court concluded that (1) the debtor's second filing did give rise to a presumption of bad faith filing under 362(c)(3)(C)(i)(II), since it was filed within the preceding year and was dismissed because of the debtor's failure to perform the terms of the plan; and (2) the debtor was unable to overcome the presumption of bad faith.

In evaluating whether the debtor could prove good faith by clear and convincing evidence, as required by 362(c)(3)(C)(i), the court found that the "traditional" factors for evaluating whether a Chapter 13 petition is filed in good faith "can still be useful" to determine whether a case has been filed in good faith under the new BAPCPA provisions. After conducting that analysis, however, the court found that the debtor could not overcome the presumption of bad faith. Her repeat filings presumptively had negatively affected her creditors, and she had not presented sufficient evidence to show that negative effect had been overcome, particularly when they had received no payments for fifteen months, had been effectively stayed since the second filing, their collateral had depreciated, and they were not being treated any better under the current plan than in the predecessor.

Interestingly, the court noted that the denial of the motion did not have the effect of lifting the stay as to property of the bankruptcy estate, and did not speculate as to how it might affect confirmation of the Debtor's chapter 13 plan.