Samuel Mark

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Baltimore
In Re: 	*
Samuel Mark, 	* 	Case No. 	05-90551-DK
* 	Chapter 	13
*
*
Debtor 	*
MEMORANDUM OF DECISION
Before the court is the Debtor's Motion to Extend Automatic Stay pursuant to 11 U.S.C. §
362(c)(3)(B). The court held a hearing on January 11, 2006, at which Debtor presented evidence and
at which conclusion the court issued its oral ruling granting the Debtor's Motion. 	Based upon the
factual findings of the court and for the reasons set forth on the record at that hearing and in this
Memorandum, the court granted the Debtor's request to grant an extension of the automatic stay by
Order entered January 13, 2006.
The instant chapter 13 case was commenced on December 13, 2005 and is therefore subject to
the recent legislative amendments to the Bankruptcy Code as set forth in the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (the "BAPCPA"), Pub. L. No. 109-8, 11 Stat. 23,
Date signed January 23, 2006
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1“Except as otherwise provided in this Act, this Act and the amendments made by this
Act shall take effect 180 days after the date of enactment of this Act.” Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23, at § 1501.
The date of enactment was April 18, 2005.
2
which became effective October 17, 2005.1 Because Debtor had been a debtor under a prior bankruptcy
case that had been pending within the year prior to the filing of the instant case, but which case had
been dismissed, Debtor fell subject to the exception to the continuance of the automatic stay set forth
in Section 362(c)(3)(A), a new section to the Bankruptcy Code as enacted as part of the BAPCPA.
Section 362(c)(3)(A) provides:
[I]f a single or joint case is filed by or against debtor who is an individual in a case
under chapter 7, 11, or 13, and if a single or joint case of the debtor was pending within
the preceding 1-year period but was dismissed, other than a case refiled under a chapter
other than chapter 7 after dismissal under section 707(b)---
(A) the stay under subsection (a) with respect to any action taken with respect
to a debt or property securing such debt or with respect to any lease shall terminate with
respect to the debtor on the 30th day after the filing of the later case.
11 U.S.C. § 362(c)(3)(A). The Code further provides that a party-in-interest ( including the debtor)
may seek an extension of the stay beyond the 30 days as to any or all creditors and the court may order
such extension if the party in interest successfully demonstrates that the later case was filed in good
faith as to the creditors to be stayed. 11 U.S.C. § 362(c)(3)(B). That subsection states:
[O]n the motion of a party in interest for continuation of the automatic stay and upon
notice and a hearing, the court may extend the stay in particular cases as to any or all
creditors (subject to such conditions or limitations as the court may then impose) after
notice and a hearing completed before the expiration of the 30-day period only if the
party in interest demonstrates the filing of the later case is in good faith as to the
creditors to be stayed. . . .
11 U.S.C. § 362(c)(3)(B).
It is pursuant to this Subsection 362(c)(3)(B) that Debtor filed his Motion to Extend Automatic
Stay on December 14, 2005. Upon review of the Motion, the court set a hearing to be held within the
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2 What the witness says on the witness stand or document states in its writing is not
preclusive on the court as to what the facts are. As the finder of fact, the court may disbelieve or
give scant weight even to uncontradicted evidence.
3
30-day period on January 11, 2006 and sent notice to all creditors.
At the January 11, 2006 hearing, no creditors appeared to contest the Debtor’s Motion, but
nevertheless Debtor is required to prove that the present case was filed in good faith as to the rights of
all creditors who would be stayed under such an extended automatic stay. In this case, Debtor seeks
an extension of the stay as to all creditors and so it is the interests of all creditors that this case is
measured against. There does not appear to be any dispute in the evidence and the court found the
evidence credible, despite the appearance of only one witness and only one document.2 Mr. Mark
testified truthfully.
There is currently no precedent in this district for reviewing motions to extend the automatic
stay under the BAPCPA, thus the court looks first to the language of Section 362(c)(3)(B) and (C) and
the attendant legislative history. As recited above, Section 362(c)(3) permits the court to extend the
stay only upon a finding of good faith. Section 362(c)(3)(C) narrows this analysis by providing:
For purposes of subparagraph (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) more than 1 previous case under any of chapters 7, 11, and 13 in
which the individual was a debtor was pending within the preceding 1-year
period;
(II) a previous case under any of chapters 7, 11, and 13 in which the
individual was a debtor was dismissed within such 1-year period, after the debtor
failed to--
(aa) 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 a substantial excuse unless the
dismissal was caused by the negligence of the debtor’s attorney);
(bb) provide adequate protection as ordered by the court; or
(cc) perform the terms of a plan confirmed by the court; or
(III) there has not been a substantial change in the financial or personal
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3 Debtor’s prior case was 05-10655, a chapter 13 case filed on January 11, 2005 and
dismissed on October 27, 2005 upon the chapter 13 trustee’s motion to dismiss for a material
default in plan payments.
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affairs of the debtor since the dismissal of the next most previous case
under chapter 7, 11, or 13 or any other reason to conclude that the later
case will be concluded--
(aa) if a case under chapter 7, with a discharge; or
(bb) if a case under chapter 11 or 13, with a confirmed plan that
will be fully performed; and
(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, that action was still pending or had been resolved by terminating, conditioning,
or limiting the stay as to actions of such creditor. . . .
11 U.S.C. § 362(c)(3)(C).
The statute therefore requires the court, upon a motion for extension, to first determine if there
exists a presumption of the case having been filed “not in good faith.” As to an extension that would
apply to all creditors, there are three subparts to this analysis, the first two being historical inquiries and
the third requiring an investigation into current circumstances of the debtor. The court reviews them
in turn.
Subsection (I) inquires if the debtor had pending more than one previous chapter 7, 11, or 13
case during the preceding 1-year period. As to the Debtor herein, only one prior case was pending
during the preceding year 3 and thus, no presumption arises in response to Subsection (I).
Pursuant to Subsection (II), the court must determine whether prior to the dismissal of any of
the prior cases (those having been dismissed in the preceding one year), the debtor failed either (i) to
file or amend documents as required by the court, (ii) to make court ordered adequate protection
payments, or (iii) to perform the terms of a plan confirmed by the court. In the instant case, the court
finds that the Debtor did not perform the terms of a plan confirmed by the court (as evidenced by the
dismissal of the case for material default in plan payments). Accordingly, under this Subsection (II),
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4 If no presumption arises against good faith, the moving party still carries the burden to
demonstrate good faith. However, the language of the statute appears to suggest a lower
5
there is a mandated presumption that the Debtor did not file the instant case in good faith.
Although the court finds that there exists a presumption against good faith based upon the
Subsection (II), the court notes a presumption against good faith would not have arisen under
Subsection (III). 	That subpart requires the court to factually determine whether there has been a
substantial change in the debtor’s affairs since the immediately preceding case so as to lead the court
to find that the current case will result in the debtor either receiving a chapter 7 discharge or being able
to fully perform a plan of reorganization. 	The court did find that Debtor proved a change in
circumstance based on the testimony described below and therefore, no presumption against good faith
arises under Subsection (III).
Nor would the presumption have arisen pursuant to an additional factor that may trigger a
presumption of bad faith when applied to a specific creditor. Subsection (ii) of Section 362(c)(3)(C),
provides that if in a prior dismissed case an action to terminate or modify the automatic stay was
pending, or if the action had been resolved by a termination or conditioning of the stay, then there is
a presumption of bad faith as to that creditor upon the debtor’s request for an extension of the automatic
stay in the new case. 11 U.S.C. § 362(c)(3)(C)(ii). In the instant case, the court takes judicial notice
of the docket of the Debtor’s prior case before this court. In that case, there were no action by any
creditor to terminate the automatic stay and therefore the presumption does not arise under this
subsection.
If the court finds (as here) that grounds exist to presume a lack of good faith as to the intent in
filing the current case, it is incumbent upon the party seeking the extension of the automatic stay to
rebut that presumption by a demonstration of “clear and convincing” evidence of good faith.4
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threshold of evidence as the moving party would not have to overcome the burden of the bad
faith presumption by “clear and convincing evidence.”
5 Although Section 362(c)(3)(C)(I) sets forth factors that will trigger the presumption of
bad faith.
6 See e.g., 11 U.S.C. § 109(c)(5)(B), 727(a)(9)(b)(ii), 1126(e), 1129(a)(3), 1325(a)(3).
6
“Clear and convincing evidence” certainly has been defined by courts in other contexts outside
this new Act.. The Fourth Circuit, noting that Congress has used the term “clear and convincing” in
numerous statutes, addressed the various burdens to be assigned in Direx Israel, Ltd. V. Breakthrough
Medical Corp., 952 F.2d 802 (4th Cir. 1992). The Court, citing the United States Supreme Court,
wrote:
[C]lear and convincing is a well-recognized standard in the proof scheme employed by
our nations courts. 	In Addington v. Texas, the Supreme Court identified the “three
standards or levels for different types of cases” as follows: “preponderance of the
evidence” is the lowest level of proof, and is to be applied in the “typical civil case
involving a monetary dispute”; “beyond reasonable doubt” is the highest level of proof,
and is to be applied “in a criminal case”; and “clear and convincing” is an “intermediate
standard,” which is to be applied in cases where interests at stake “are deemed to be
more substantial than mere loss of money.” 	This intermediate level of proof, the
Supreme Court added, is “no stranger in the civil law.” A relevant treatise, for example,
defines “clear and convincing” as meaning “highly probable.” 9 J. Wigmore Evidence
§ 2498 (3d ed. 1940).
Id. at 810 fn 7 (citing Addington v. Texas, 441 U.S. 418, 423-24, 99 S.Ct. 1804, 1807-08, 60 L.Ed. 2d
323 (1979)). Thus, the requirement is for a level of proof beyond “preponderance,” but below “beyond
reasonable doubt.”
Section 362(c)(3) does not include a definition of good faith or a list of factors to be
considered.5 However, the concept of good faith has been referred to elsewhere in the Bankruptcy
Code 6 since its inception in 1979. Courts have had occasion to write as to what good faith means, and
what tests should be employed in determining it in other contexts.
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It is well settled that in the absence of a legislative definition of a particular term, that the term
will be ascribed the common meaning that has arisen through judicial interpretation over time. 	In
Costar Group, Inc. v. Loopnet, Inc., 373 F.3d 544 (4th Cir. 2004), the Court of Appeals for the Fourth
Circuit quoted the United States Supreme Court when writing, “[t]he normal rule of statutory
construction is that if Congress intends for legislation to change the interpretation of a judicially created
concept, it makes that intent specific.” Id. at 553 (quoting Midlantic Nat’l Bank v. N.J. Dep’t of Envtl.
Prot., 474 U.S. 494, 501, 106 S.Ct. 755, 88 L.Ed. 2d 859 (1986)). See also The Penn Mutual Life Ins.
Co. v. Woodscape L.P. (In re Woodscape L.P.), 134 B.R. 165 (Bankr. D. Md. 1991). Accordingly, the
court will look to judicially created definitions of good faith that are helpful to the necessary analysis
under Section 362(c)(3).
In the case of Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989), the United States Court of
Appeals for the Fourth Circuit explored the requirement of good faith in the context of a motion to
dismiss chapter 11 case brought under Section 1112(b) of the Bankruptcy Code. The Court began its
analysis by adopting a good faith filing requirement, that although not expressed in the Bankruptcy
Code, was mandated in order to “protect[] the jurisdictional integrity of the bankruptcy courts by
rendering their powerful equitable weapons (i.e., avoidance of liens, discharge of debts, marshalling
and turnover of assets) available only to those debtors and creditors with ‘clean hands.’” Id. at 698.
The Court determined that a creditor seeking to dismiss the Chapter 11 case alleging that it was filed
in bad faith, was required to prove two elements. Those elements: objective futility and subjective bad
faith were to be decided by an analysis of the totality of the circumstances. Id. at 701-02.
As to the objective futility component, the Court reasoned that the proper analysis required a
determination whether there was any “hope of rehabilitation, except according to the debtor’s ‘terminal
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7 In Deans v. O’Donnell, a case analyzing good faith in the context of Section
1325(a)(3), the Court of Appeals initially noted that Congress had not provided a definition of
good faith in the statute or in the legislative history. Id. at 969. The Court further stated: “While
no precise definition can be sculpted to fit the term ‘good faith’ for every Chapter 13 case, we
think the generally accepted definition of ‘good faith’ as used in Chapter 11 of the old
Bankruptcy Act, 11 U.S.C. § 766(4) (1976)(repealed), provides the general parameters: . . .
‘Broadly speaking, the basic inquiry should be whether or not under the circumstances of the
case there has been an abuse of the provision, purpose, or spirit of [the Chapter] in the proposal
or plan. . . .’” Id. at 972 (quoting 9 Collier on Bankruptcy 9.20 at 319 (14th ed. 1978)).
8
euphoria’[.]” Id. at 701-02 (quoting In re Little Creek Development Co., 779 F.2d 1068, 1073 (5th Cir.
1986)).
The subjective inquiry into bad faith, however, was stated to be “designed to insure that the
petitioner actually intends ‘to use the provisions of Chapter 11. . . to reorganize or rehabilitate an
existing enterprise, or to preserve going concern values of a viable or existing business.’” Id. at 702
(quoting In re Victory Constr. Co., 9 B.R. 549, 564 (Bankr. C.D. Cal. 1981)(Victory I)). The Court
further stated that the “aim is to determine whether the petitioner’s real motivation is ‘to abuse the
reorganization process’ and ‘to cause hardship or to delay creditors by resort to the Chapter 11 device
merely for the purpose of invoking the automatic stay, without an intent or ability to reorganize his
financial activities.’” Id. (quoting In re Thirtieth Place, Inc., 30 B.R. 503, 505 (9th Cir. Bankr. App.
1983)).
Prior to its decision in Carolin Corp., the Court of Appeals, in Neufeld vs. Freeman, 794 F.2d
149 (4th Cir. 1986), described the meaning of good faith when applied to confirmation of a chapter 13
plan. The Court held that to confirm a chapter 13 plan, the plan had to be proposed in good faith as
provided by Section 1325(a) of the Bankruptcy Code.
In the Neufeld decision, the Court re-enumerated factors first announced in the earlier decision
of Deans v. O’Donnell, 692 F.2d 968 (4th Cir. 1982),7 and then added one more. 	These factors
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included, among other things, employment history, unsecured claims, past bankruptcy filings, honesty
in the schedules, any exceptional circumstances facing the debtor, what changes had occurred, the
economic basis for the current case, the motivation of the debtor in the current case and the prepetition
conduct of the debtor. Id. at 152-53.
That latter factor was added in the context of an argument as to whether or not a non-
dischargeable debt in a Chapter 7 resulting from some egregious conduct of the debtor should weigh
as to the ability of the debtor to obtain a Chapter 13 discharge, which would have included such debt.
Id. The ultimate purpose of this inquiry, according to the Court of Appeals, was “to determine whether
or not, considering ‘all militating factors,’ there has been ‘an abuse of the provisions, purpose, or spirit’
of Chapter 13 in the proposal or plan.’” Id. at 152 (quoting Deans v. O’Donnell, 692 F.2d at 972).
In the instant case, the court determines that the Neufeld decision and Carolin Corp. have some
bearing on what definition of good faith should be applied to extend the automatic stay and in the
absence of clear congressional intent to the contrary, the court must apply what prior judicial
interpretations of terms are available. 	The court finds that it should examine ultimately the question
which has been framed and stated in Neufeld.
To determine whether or not there has been an abuse of the provisions, purpose or spirit of
Chapter 13, the court will look to the factors announced in Neufeld, as well as the objective futility
standard and subjective intent standards pronounced in the dismissal context in the chapter 11 Carolin
Corp. decision. The difference between the analysis required under Carolin Corp. and that required
pursuant to Section 362(c)(3) includes that in the Section 362(c)(3) analysis, the burden does not rest
on the party seeking dismissal as in Section 1112(b), but on the party seeking the extension of
automatic stay (most likely the debtor). So, instead of the court determining whether a party has proven
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objective futility and subjective bad faith, the court must determine whether the movant has dis-proved
any of those factors.
In applying these standards to the instant case, the court finds that the evidence clearly
demonstrated that the Debtor’s prior case was dismissed after Debtor lost his source of income that he
had expected and had received, and which would have funded out the confirmed plan in the prior case.
After examining the record of the prior case, the court takes judicial notice of the fact that there was
entered a wage garnishment order to automatically deduct plan payments from the Debtor’s employer.
When Debtor fell into default under the plan payments, which led to the case’s dismissal, it is clear that
the employer was no longer paying under that wage order (that Debtor was no longer receiving that
income).
Secondly, the court looks at the proposed Chapter 13 plan, as Neufeld describes. In the current
proposed plan, the percentage proposed repayment is 100%. Debtor is not trying to slide through the
bankruptcy by doing the bare minimum that might be necessary to obtain a discharge and leave
creditors substantially without any benefit from the reorganization. Quite to the contrary, Debtor seeks
to make full repayment to creditors that file and have allowed claims.
The court next evaluates the Debtor’s financial situation. This includes the Carolin Corp. factor
of whether or not there is objective futility. It certainly would be objective futility if the Debtor’s
circumstances had not materially changed from that which caused the default in plan payments in the
prior case. However, the Debtor’s testimony indicates two important facts. One, that Debtor has a new
business from which he expects to receive a substantially larger income to be made available to allow
him to pay the plan payments. While by itself would not clearly and convincingly indicate to the court
that the case is not futile, the second fact is that this new employment is presently generating a higher
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level of income. Debtor did not merely testify to an expectation, but that he has received an actual
profit under the contract and is moving forward successfully. The evidence demonstrates that he has
a reasonable expectation based upon present facts that he will generate sufficient income to succeed
in his financial reorganization.
The court also has accessed the court’s records concerning the prior filings of bankruptcy by
this Debtor and takes judicial notice of its record. This is the second case filed by Debtor. The court
certainly does not suggest a per se test regarding the number of prior cases, but given the circumstances
finds that number herein consistent with other facts presented that Debtor is proceeding in good faith
and not intent on abusing the provisions and spirit of the Bankruptcy Code and Chapter 13. This is not
a serial filer, as that term is sometimes used to describe a person who files time and time again just to
daisy-chain automatic stays to the detriment of creditors, but without any real prospect and intent to
reorganize. There is a reasonable explanation for why there is a second case and the prospects of the
second case certainly look much different than the circumstances that existed at the end of the first case.
Given all of these facts, the court concludes that the Debtor’s subjective intent in this case is
to reorganize and pay creditors and that objectively, Debtor has a reasonable prospect of doing so.
These facts and conclusions are proven by clear and convincing evidence. The court reaches the final
conclusion that the current case is not an abuse of the provisions, purpose or spirit of Chapter 13 and
therefore, is filed in good faith.
For these reasons, the court has granted the Debtor’s Motion to Extend Automatic Stay.
cc: 	Debtor
Debtor's counsel
Chapter 13 Trustee
Office of United States Trustee
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All creditors and parties in interest
End of Memorandum
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