Repeat Chapter 13 Filer May Obtain Extension of Bankruptcy Stay Through Terms of Chapter 13 Plan

by Craig Andresen, Minneapolis, MN, Bankruptcy Attorney

July 7, 2011

A U.S. bankruptcy court in California agreed with a chapter 13 debtor that the terms of his chapter 13 plan could prevent a foreclosure, even though he had previously filed a chapter 13 which was dismissed in the one year prior to his second case.  Mortgage banks will consider this ruling to be an “end run” around the strictures of 11 U.S.C. section 362(c)(3)(A), especially because the debtor in this case failed to make a timely motion to extend the bankruptcy stay pursuant to section 362(c)(3)(B).

Section 362(c)(3)(B) provides that in a bankruptcy case filed within one year of a prior case, the stay expires after 30 days, unless the debtor files a motion to extend the stay prior to its expiration.  Normally, a mortgage bank is permitted to foreclose once the stay is terminated.

The result in this case was that the repeat bankruptcy filer was able to avoid the consequences of filing chapter 13 within one year of having a prior case dismissed, and then failing to obtain an order extending the bankruptcy stay, by simply including his mortgage bank in the terms of his chapter 13 plan.

In this case, In re Hileman, 2011 WL 2341090 (Bky.C.D.Cal. June 13, 2011), the debtor filed a second chapter 13 case within one year of a prior chapter 13, and filed a motion to extend the stay 31 days after filing the case.  The motion was denied due to having been filed too late.  However, the debtor’s chapter 13 plan provided that he would continue paying his home mortgage, and that the debtor would “cure” the past due mortgage payments over 60 months.  This plan was confirmed by the court without any objection by the mortgage bank.

A few months later, the mortgage bank started a new foreclosure proceeding, relying on the bankruptcy stay having automatically terminated by reason of section 362(c)(3)(A) regarding repeat bankruptcy filings.

The bankruptcy court surprised the mortgage bank by halting the foreclosure.  It ruled that the mortgage bank was legally bound by the chapter 13 plan’s provision that the debtor would both continue monthly mortgage payments and catch up the arrears over 60 months.  The mortgage bank’s failure to object to the plan made the plan binding, and no foreclosure could be started, unless the debtor defaulted on plan payments and the bankruptcy court authorized a foreclosure.  This was true even if the stay had expired pursuant to section 362(c)(3)(A).

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.

Last modified: July 7, 2011