Monday, December 05, 2005

Request to Extend Stay Must be Served on Affected Creditors

In In re Collins, __ B.R. __, 2005 WL 3163962 (Bankr. D. Minn. 11/29/05), a Minnesota bankruptcy court has confirmed that a motion to extend the automatic stay and avoid termination pursuant to 11 U.S.C. 362(c)(3) must be served on all affected creditors.

Although the Collins court notes that the relevant provisions are "clumsily drafted," it nonetheless finds that the legislative intent "unmistakably appears" that Congress intended that if a debtor takes a "second plunge" into bankruptcy within a year of dismissal of a prior case, the automatic stay is only in effect for 30 days, and can be continued thereafter only on request via motion upon a specific showing, as specified in the statute.

Since "the Act's largesse under these provisions inures to creditors" who are its clear beneficiaries, any creditors who would be affected by the extension are entitled to be notified of the request for such relief and to know the particulars of the request. This, the court found, is confirmed by the statute's reference to a "motion" (rather than an "application" or "request") and the requirement of "notice and a hearing." Since no notice to creditors was given, the debtor's motion to extend the stay was denied.

It should be noted that many bankruptcy courts treat provisions which call for "notice and a hearing" as permitting relief to be granted without an actual hearing, provided that notice and an opportunity to object is provided. See 11 U.S.C. 102(1). By the language of 362(c)(3)(B), such "negative notice" relief could be available for motions to extend the stay. We will have to see if courts begin to adopt procedures for doing so under their local rules.


My Daily Struggles said...

I'm a disabled lawyer. I'm thinking I should have specialized in bankruptcy law.

Anonymous said...

Do you think the Court's remark that the Legislation clearly inures to benefit creditors can be cited to other Court's by creditors in arguing that provisions of BAPCPA should generally be construed and interpretted in favor of creditors (when faced with two different interpretations.

Anonymous said...

Makes sense, but who do you serve? In most cases, no one has entered their appearance. It is sufficient to serve mortgage company directly, or do we have to serve the attorney who represented the mortgage company in the previous bankruptcy?

Frodnesor said...

Dennis - first, there are some judges out there who continue to operate on the guiding principle that Congress wants to protect the honest but unfortunate debtor. See the Graham decision recently discussed. But if you want to buy into the notion that the legislation was really drafted by the financial institutions' lobbyists, well then why shouldn't we borrow from contract prinicples and construe it against its drafters?