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In re Rice-Harris

United States District Court, N.D. Illinois, Eastern Division

April 12, 2018

In re TINA RICE-HARRIS, Debtor.
v.
FIRST FEDERAL SAVINGS BANK, Appellee. TINA RICE-HARRIS, Appellant,

          MEMORANDUM OPINION AND ORDER

          Gary Feinerman, Judge

         Tina Rice-Harris appeals the bankruptcy court's denial of her motion to extend the thirty-day automatic stay authorized by 11 U.S.C. § 362(c)(3)(A). Doc. 1. The bankruptcy court's ruling is affirmed.

         Background

         A. Facts

          The following facts are not in dispute. Rice-Harris married Matthew Harris in March 2013. Doc. 12-1 at 120. Approximately a year earlier, Harris had purchased in fee simple a property located at 1100 West Chestnut Street in Chicago (the “Property”). Id. at 94. Harris financed the purchase with a $680, 100 promissory note from First Federal Savings Bank secured by the Property. Ibid.

         In September 2014, Harris executed a quitclaim deed, transferring the Property to himself and Rice-Harris as tenants by the entirety. Id. at 95, 122-24. When Harris died, Rice-Harris became the sole owner of the Property through the right of survivorship. Id. at 111. Rice-Harris continues to live on the Property, but because she was not a signatory to the promissory note, she has no personal financial obligation to First Federal. Id. at 95; Doc. 12-2 at 35. On April 3, 2015, after the note went into default, First Federal filed a foreclosure suit in the Circuit Court of Cook County, Illinois. Doc. 12-1 at 95. Judgment against the Property, but not Rice-Harris personally, entered in that case on October 27, 2016. Ibid.; No. 17 B 2304 (Bankr. N.D. Ill.), Dkt. 17-1.

         Rice-Harris filed her first Chapter 13 petition on January 26, 2017-the day the redemption period associated with the state court foreclosure proceeding expired. Doc. 12-1 at 90, 113; Doc. 12-2 at 29; No. 17 B 2304 (Bankr. N.D. Ill.), Dkt. 1, Dkt. 17 at 5. On May 23, 2017, the bankruptcy court granted the Chapter 13 trustee's motion to dismiss the case under 11 U.S.C. § 1307(c)(1) for Rice-Harris's “unreasonable delay” in providing her creditors with the required “business packet and statement of financial affairs.” No. 17 B 2304 (Bankr. N.D. Ill.), Dkts. 24, 30. On July 25, 2017, Rice-Harris filed her second Chapter 13 petition, which is the subject of this appeal. Doc. 12-1 at 8.

         B. Statutory Scheme

         With certain exceptions, filing a bankruptcy petition “operates as a stay, applicable to all entities, of … any act to … enforce against property of the debtor any lien … [that] secures a claim that arose before the commencement of the case.” 11 U.S.C. § 362(a)(5). Ordinarily, the stay remains in place for the duration of the bankruptcy proceeding-that is, until the time the case is closed or dismissed or a discharge is granted, whichever comes first. See id. § 362(c)(2). The Bankruptcy Code, however, limits the automatic stay's length for certain categories of repeat filers. As relevant here, when a debtor files a subsequent petition after having a “case … pending within the preceding 1-year period … dismissed, ” the automatic stay lasts for only thirty days. Id. § 362(c)(3)(A); see In re Paulino, 2014 WL 5358409, at *1 (Bankr. S.D.N.Y. Oct. 20, 2014) (“§ 362(c)(3) of the Bankruptcy Code provides that a debtor loses the protection of the automatic stay after 30 days in a case filed within 12 months of the dismissal of an earlier proceeding.”). The Code nevertheless permits a “party in interest, ” including the debtor, to move for an extension “before the expiration of the 30-day period, ” but “only if the party in interest demonstrates that 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); see In re Roberts, 2015 WL 7257918, at *2 (D. Haw. Nov. 16, 2015) (“The bankruptcy court may extend the thirty-day stay if a party files a timely motion showing that the second bankruptcy case was filed in good faith.”).

         In certain circumstances, the Code imposes a presumption, rebuttable by “clear and convincing evidence to the contrary, ” that the subsequent filing was not made in good faith. 11 U.S.C. § 362(c)(3)(C). As relevant here, the presumption applies in the case of a debtor whose “previous case … was dismissed within … [the preceding] 1-year period, after the debtor failed to … file or amend the petition or other documents as required by this title or the court without substantial excuse.” Id. § 362(c)(3)(C)(II)(aa); see Marshall v. Blake, __ F.3d __, 2018 WL 1417550, at *13 (7th Cir. Mar. 22, 2018) (“Blake filed a previous bankruptcy case that was dismissed within one year of the filing of this matter due to Blake's failure to make plan payments. As a result, this case was presumed to have been filed in bad faith. To rebut this presumption and extend the automatic bankruptcy stay at the outset of this case, Blake had to provide clear and convincing evidence that this case was filed in good faith.”) (citation and internal quotation marks omitted). The presumption also applies if “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.” 11 U.S.C. § 362(c)(3)(C)(III); see In re Gibas, 543 B.R. 570, 596-97 (Bankr. E.D. Wis. 2016) (discussing the statutory scheme).

         C. Procedural History

         On July 27, 2017, two days after filing her second Chapter 13 petition, Rice-Harris moved under § 362(c)(3)(B) to extend the thirty-day automatic stay. Doc. 12-1 at 9, 87-92. In her affidavit accompanying the motion, Rice-Harris averred that she “intend[ed] to put the Property on the Market in April 2018 and expect[ed] to close on a sale prior to the end of June 2018. … [T]he net proceeds from the sale of the Property will be in excess of the claim held by First Federal Savings Bank.” Id. at 92. Rice-Harris added that this second Chapter 13 proceeding “was filed in good faith. I have retained different bankruptcy counsel from [the earlier case], and have put forth a plan which I believe will repay my creditors in an appropriate and responsible manner.” Ibid. After First Federal objected to Rice-Harris's motion, id. at 94-102, the bankruptcy court held hearings on August 3 and August 10, Doc. 12-2 at 1, 13.

         At the August 10 hearing, the bankruptcy court orally denied Rice-Harris's motion for two independent reasons. Id. at 22. First, the court held that because Rice-Harris's right of redemption under state law had expired, she no longer had an ownership interest in the Property, which was therefore no longer property of the bankruptcy estate. Id. at 20-21. Second, after noting that the § 362(c)(3)(C) presumption (that her second petition was not filed in good faith) applied “as a result of the dismissal of [her] prior Chapter 13 case” for failure to provide creditors with required documents, the court held that Rice-Harris had not “rebutted that presumption by clear and convincing evidence.” Id. at 23. The court also held that there had been no “change … in the financial or personal affairs of the debtor since the dismissal of the prior case … sufficient to rebut the presumption.” Ibid. The court, however, permitted Rice-Harris to file additional briefing on the question whether she still had a cognizable interest in the Property despite the expiration of the redemption period. Id. at 25-26.

         At a third and final hearing on August 24, the bankruptcy court first held, in light of Colon v. Option One Mortgage Corp., 319 F.3d 912 (7th Cir. 2003), that it had incorrectly concluded at the August 10 hearing that Rice-Harris did not have an ownership interest in the Property. Doc. 12-2 at 28-30. The court nevertheless reaffirmed its earlier holding that Rice-Harris had failed to rebut the § 362(c)(3)(C) presumption by clear and convincing evidence. Id. at 32-34. Relying on In re Love, 957 F.2d 1350 (7th Cir. 1992), the court looked to the “totality of the circumstances” surrounding her second bankruptcy petition. Id. at 31. The court considered these factors from Love: “the timing of the petition, how the debt arose, the debtor's motive in filing the petition, and how the debtor's actions affect[] its creditors.” Ibid. The court also considered the following additional factors: “why the debtor's prior case was dismissed, including the debtor's conduct in that case, the likelihood that the debtor will have a steady income ...


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