§ 61.3     (Rebuttable) Presumption of Lack of Good Faith
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 61.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

When a Chapter 13 debtor had two or more prior cases that were pending and dismissed within a year, no § 362(a) automatic stay arises under § 362(c)(4)(A) in the current case.1 On timely motion of a party in interest,2 the bankruptcy court can impose a stay as to any or all creditors if the moving party demonstrates that the current case is filed in good faith as to creditors to be stayed.3 When a party in interest moves to impose a stay, § 362(c)(4)(D) comes into play and there is a rebuttable presumption that the current case is filed “not in good faith” under the following circumstances:

for purposes of [§ 362(c)(4)(B)], a case is presumptively filed not in good faith (but such presumption may be rebutted by clear and convincing evidence to the contrary)—
(i) as to all creditors if—
(I) 2 or more previous cases under this title in which the individual was a debtor were pending within the 1-year period;
(II) a previous case under this title in which the individual was a debtor was dismissed within the time period stated in this paragraph after the debtor failed to file or amend the petition or other documents as required by this title or the court without substantial excuse (but mere inadvertence or negligence shall not be substantial excuse unless the dismissal was caused by the negligence of the debtor’s attorney), failed to provide adequate protection as ordered by the court, or failed to perform the terms of a plan confirmed by the court; or
(III) there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the next most previous case under this title, or any other reason to conclude that the later case will not be concluded, if a case under chapter 7, with a discharge, and if a case under chapter 11 or 13, with a confirmed plan that will be fully performed; or
(ii) as to any creditor that commenced an action under subsection (d) in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, such action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to such action of such creditor.4
[2]

This elaborate presumption is one of the more curious inventions of BAPCPA. There are several strangenesses here. Focus first on § 362(c)(4)(D)(i)(I): the presumption that the current case is filed not in good faith arises as to all creditors if “2 or more previous cases . . . were pending within the 1-year period.”5 The “1-year period” here means the year preceding the filing of the current petition. As explained above,6 for § 362(c)(4)(A) to apply in the first instance, there must have been “2 or more . . . cases . . . pending within the previous year but . . . dismissed, other than a case refiled under section 707(b).”7 In other words, a Chapter 13 debtor would not be bereft of the automatic stay described in § 362(c)(4)(A)(i) unless two or more cases were pending and dismissed within the previous year (not counting any previous case “refiled under section 707(b)”); and every debtor with two or more “pending and dismissed” cases within the previous year will have two or more cases “pending” (only) within that year for purposes of the presumption in § 362(c)(4)(D). Conclusion: The rebuttable presumption that the current case is not filed in good faith will always arise and the burden of proof with respect to good faith will always be clear and convincing evidence if no stay arose in the first instance because of § 362(c)(4)(A)(i).

[3]

Was this intended? Seems unlikely. Why the elaborate half-page of alternative conditions that give rise to the presumption in § 362(c)(4)(D)(i)(II) and (III) and (ii)? If every § 362(c)(4)(A) case was intended to be presumptively filed not in good faith, then most of § 362(c)(4)(D) is surplusage. A variant of this concern inspired the bankruptcy court in In re Toro-Arcila8 to conclude that § 362(c)(4)(B) applies in the one-case scenario more directly addressed by § 362(c)(3)(B).9

[4]

The messy drafting here may have resulted from a misguided effort to copy into § 362(c)(4) the presumption that arises under § 362(c)(3)(C) when the automatic stay is limited to 30 days because of one prior pending and dismissed case within the preceding year.10 When there has been only one prior pending and dismissed case within a year, a presumption arises that the current case is not filed in good faith if there was more than one previous case pending within the year.11 Copying that unedited concept from § 362(c)(3) into § 362(c)(4) creates the goofiness in § 362(c)(4)(D) that there will always be two or more prior pending cases within the year else § 362(c)(4) would not apply in the first instance. Importing the presumption from § 362(c)(3) into § 362(c)(4) renders most of § 362(c)(4)(D) surplusage.

[5]

It has to be said that the illogic in § 362(c)(4)(D) has not stopped the courts from analyzing the alternative conditions in § 362(c)(4)(D) to determine whether the presumption arises that the current petition is not filed in good faith. Several reported decisions find the presumption good faith is lacking arises under § 362(c)(4)(D) based on circumstances other than the inevitability that the debtor had two or more previous cases pending within the year.12

[6]

But the strangeness doesn’t end with the unnecessary words and conditions in § 362(c)(4)(D). Digging deeper, you can’t help but compare the words in § 362(c)(4)(D) to § 362(c)(3)(C) because both subsections are intended to raise a presumption that the current case is filed not in good faith. Section 362(c)(4)(D) extends a rebuttable presumption that the current filing is not in good faith to all creditors for approximately the same reasons discussed above with respect to § 362(c)(3)(C)13 but using different punctuation and some different words. For example, the presumption based on “more than one previous case under . . . chapter 7, 11, and 13” in § 362(c)(3)(C)(i)(I) is changed to read “2 or more previous cases under this title” in § 362(c)(4)(D)(i)(I). There is a double “not” in § 362(c)(4)(D)(i)(III) that is missing altogether in § 362(c)(3)(C)(i)(III), and these two subsections are organized into sub-subsections in different ways.

[7]

The similarities of § 362(c)(3)(C) and (4)(D) attract the logic that cases discussing the presumption in § 362(c)(3) will be useful in applying the presumption in § 362(c)(4). Perhaps the enigmatic differences in words and punctuation will be a barrier to this logic.

[8]

One thing seems certain, Chapter 13 debtors wandering into a third case within a year when two prior cases were pending and dismissed must prove good faith by clear and convincing evidence to warrant a stay under § 362(c)(4)(B) and (D). This elevated burden applies to proof of good faith, not to the preconditions that trigger application of § 362(c)(4) or that give rise to the presumption. In other words, proof that two or more previous cases were pending within a year of the current petition requires a preponderance of the evidence as the predicate to presumption that the current case is filed not in good faith. Similar logic has been applied to the presumption in § 362(c)(3)(C).14

[9]

As mentioned above with respect to § 362(c)(3),15 § 362(c)(4)(D) defines conditions that raise a presumption that the current case is filed not in good faith without revealing what clear and convincing evidence to the contrary would be probative of good faith. When the condition giving rise to the presumption is the fact of two or more pending cases in the previous year, “evidence to the contrary” probably should explain the multiple cases and address why prospects in the current case should inspire the court to impose a stay on some or all creditors. This is not so different from proving a substantial change in the personal or financial affairs of the debtor—evidence directed at the alternative condition in § 362(c)(4)(D)(i)(III).16 Clear and convincing proof of good faith in the third (or more) case within a year will be no walk in the park for any Chapter 13 debtor.17


 

1  11 U.S.C. § 362(c)(4)(A)(i), discussed in § 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1  When Does § 362(c)(4) Apply?.

 

2  See § 433.2 [ Procedure, Timing and Form for Imposing Stay ] § 61.2  Procedure, Timing and Form for Imposing Stay.

 

3  11 U.S.C. § 362(c)(4)(B), discussed in § 433.2 [ Procedure, Timing and Form for Imposing Stay ] § 61.2  Procedure, Timing and Form for Imposing Stay.

 

4  11 U.S.C. § 362(c)(4)(D).

 

5  11 U.S.C. § 362(c)(4)(D)(i)(I) (emphasis added).

 

6  See § 433.1 [ When Does § 362(c)(4) Apply? ] § 61.1  When Does § 362(c)(4) Apply?.

 

7  11 U.S.C. § 362(c)(4)(A)(i) (emphasis added).

 

8  334 B.R. 224 (Bankr. S.D. Tex. 2005).

 

9  See §§ 432.3 [ Timing, Procedure and Form for Extension of Stay ] § 60.3  Timing, Procedure and Form for Extension of Stay and 433.2 [ Procedure, Timing and Form for Imposing Stay ] § 61.2  Procedure, Timing and Form for Imposing Stay.

 

10  11 U.S.C. § 362(c)(3) is discussed beginning at § 60.1  When Does § 362(c)(3) Apply?

 

11  See §§ 432.3 [ Timing, Procedure and Form for Extension of Stay ] § 60.3  Timing, Procedure and Form for Extension of Stay and 432.4 [ (Rebuttable) Presumption of Lack of Good Faith ] § 60.4  (Rebuttable) Presumption of Lack of Good Faith.

 

12  See, e.g., In re Winters, No. 06-70447, 2006 WL 3392890 (Bankr. W.D. Va. Nov. 22, 2006) (Presumption of lack of good faith arose under § 362(c)(4)(D) because debtors had two previous cases pending within one year and both cases were dismissed because debtors failed to comply with confirmed plans.); In re Ortiz, 355 B.R. 587 (Bankr. S.D. Tex. 2006) (Presumption of lack of good faith applies under § 362(c)(4)(D) because first prior case was dismissed when debtor failed to make payments and second prior case was dismissed when debtor failed to attend meeting of creditors, failed to make payments and failed to timely file documents.); In re Jones, No. 06-51316-13, 2006 WL 3371791, at *2–*3 (Bankr. M.D.N.C. Nov. 16, 2006) (“[T]here is a presumption that a case was not filed in good faith as to any creditor that has filed a motion for relief from stay in ‘a previous case in which the individual was a debtor if, as of the date of dismissal of such case, such action was still pending’ . . . . [T]here is a presumption that the Debtors did not file in good faith as to GMAC since GMAC had filed a motion for relief from stay that was pending as of the date of dismissal in the two cases that were pending within the previous year.”).

 

13  See § 432.4 [ (Rebuttable) Presumption of Lack of Good Faith ] § 60.4  (Rebuttable) Presumption of Lack of Good Faith.

 

14  See § 432.4 [ (Rebuttable) Presumption of Lack of Good Faith ] § 60.4  (Rebuttable) Presumption of Lack of Good Faith.

 

15  See § 432.4 [ (Rebuttable) Presumption of Lack of Good Faith ] § 60.4  (Rebuttable) Presumption of Lack of Good Faith.

 

16  See also 11 U.S.C. § 362(c)(3)(C)(i)(III), discussed in § 432.4 [ (Rebuttable) Presumption of Lack of Good Faith ] § 60.4  (Rebuttable) Presumption of Lack of Good Faith.

 

17  See § 434.2 [ Proof of Good Faith ] § 61.4  Proof of Good Faith.