Opinion ID: 174079
Heading Depth: 2
Heading Rank: 4

Heading: Whether the Automatic Stay is Triggered

Text: Having determined that a case is commenced, we turn to the question whether the automatic stay takes effect when a petition is filed by a debtor ineligible under § 109(h). We conclude that it does. Section 362, which outlines the basic commencement, effect, and termination of the automatic stay, provides significant indications to that effect. As an initial matter, the section contains language suggesting that the stay accompanies a commenced case: [A] petition filed under section 301, 302, or 303 of this title ... operates as a stay ... of(1) the commencement or continuation ... [of an] action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; (2) the enforcement, against the debtor ..., of a judgment obtained before the commencement of the case under this title. 11 U.S.C. § 362(a). Section 362(b) lists circumstances under which the filing of a petition does not operate as a stay, but the debtor's ineligibility is not among them. Moreover, none of the mechanisms outlined in the remainder of the statute for confirming the existence of a stay or for granting relief from one address anything related to the ineligibility of a debtor. In addition, the bankruptcy court's interpretation of § 362 renders a nullity BAPCPA's enactment of § 362(b)(21)(A). Section 362(b)(21)(A) provides that certain actions against real property are not stayed when the debtor is ineligible under section 109(g) to be a debtor in a case under this title. [7] As In re Ross notes, if an action by a person ineligible under § 109(g) were void ab initio and did not result in an automatic stay under existing law, such an amendment would not have been necessary. 338 B.R. at 139; see also In re Racette, 343 B.R. 200, 203 (Bankr.E.D.Wis.2006). As discussed above, no such exception is provided for debtors ineligible under § 109(h), which leads us to the conclusion that the automatic stay commences in such cases. The bankruptcy court purported to distinguish § 109(h) from § 109(g) by characterizing ineligibility under the latter provision as a failure that may be cured or waived by the court, rendering it possible that the automatic stay could go into effect notwithstanding such a failureand thus conceivable that a provision specifying circumstances in which it should not would be necessary. See In re Elmendorf, 345 B.R. at 499-500. We agree with the Trustee that this is not a tenable distinction. The wording of § 109(g) is no less mandatory that the wording of § 109(h). Moreover, even assuming that the legislative history cited by the bankruptcy court for its description of § 109(g) is properly considered, it does not support the conclusion that the requirements of the subsection are curable. Amicus and the Trustee both correctly observe that our decision in In re Casse, 198 F.3d 327 (2d Cir.1999), does not undermine the conclusion that an ineligible debtor's petition gives rise to an automatic stay. Under separate but analogous circumstances, Casse affirmed the bankruptcy court's dismissal of a case nunc pro tunc to the date of filing and approved of annulling a stay per § 362(d), id. at 332, 342, rulings that indicate Casse recognized the stay as having initially gone into effect. See Ross, 338 B.R. at 137 n. 4; In re Flores, 291 B.R. at 57-58; Robert Lefkowitz, Note, The Filing of a Bankruptcy Petition in Violation of 11 U.S.C. § 109(g): Does It Invoke the Automatic Stay?, 26 CARDOZO L.REV. 297, 309 (2004). Finally, we note that having the automatic stay commence even when a debtor fails to satisfy the credit-counseling requirements both fits into the overall purpose and framework of the stay and ensures that eligible debtors receive protection from the bankruptcy system. The automatic stay serves a number of purposes: providing debtors with a fresh start, protecting the assets of the estate, and allowing the bankruptcy court to centralize disputes concerning the estate. MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 109 (2d Cir.2006). Much of the value of the stay is in the clarity of its implementation; once a debtor files for bankruptcy and the stay is in effect, creditors must cease their individual attempts to gain repayment and operate only through the bankruptcy court. This centralization ensures a fair distribution of assets if the debtor proceeds through bankruptcy. If it were unclear whether the stay was in place immediately following a debtor's filing for bankruptcy, creditors would likely continue their collection efforts in hopes that the bankruptcy court would find no merit in the debtor's petition. Thus, rather than providing the debtor with automatic breathing space, the Code would pressure the debtor to file correctly in the first instance or risk losing the protections of Title 11 due to the actions of several unscrupulous creditors. Shaw v. Ehrlich, 294 B.R. 260, 268 (W.D.Va.2003). Even a debtor who filed correctly might face challenges outside the bankruptcy court from particularly aggressive creditors hoping that a filing correct on its face had an underlying flaw that would redound to their advantage. Construing a debtor's ineligibility pursuant to § 109(h) as creating an exception to the automatic stay provision, therefore, is a tenuous proposition given the statutory framework provided by Congress. Our interpretation, in contrast, we believe supports and furthers that framework.