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Unpublished Paper
Resituating the Automatic Stay within the Federal Common Law of Bankruptcy
ExpressO (2015)
  • Daniel J Sheffner
Abstract
Many bankruptcy judges and practitioners make broad references to the equitable powers of bankruptcy courts. Bankruptcy courts, they exclaim, are “courts of equity” and so may do as “equity” requires. One often-cited source of bankruptcy courts’ apparently vast equitable and supplemental powers is § 105(a) of the Bankruptcy Code. Section 105(a) empowers bankruptcy courts to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Code. Section 105(a) has been cited as the basis for re-imposing the Bankruptcy Code’s automatic stay once the stay has been terminated or otherwise modified. The automatic stay enjoins all collection activities pertaining to a debtor after he has filed a petition for bankruptcy. Section 362 provides for the imposition of the stay, its lifting, modification, and cancellation, and those times when it shall not be imposed. Nowhere in § 362, nor elsewhere in the Bankruptcy Code, however, is there a provision authorizing reinstatement of the stay. Despite the lack of a textual foundation, bankruptcy courts have re-imposed the stay with gusto when they believe such action is warranted by their “broad” equitable powers under § 105(a). Section 105’s history, recent scholarship, and the Supreme Court’s recent decision in Law v. Siegel, however, highlight that section’s inability to serve as a vehicle for reinstating the stay. The question arises, then, whether bankruptcy courts are imbued with the authority to re-impose the automatic stay by another source of authority. This Article argues, based on a well-researched 2006 article written by Professor Adam Levitin, that bankruptcy courts are able to reimpose the stay pursuant to their abilities to craft federal bankruptcy common law rules of decision. Part I briefly summarizes the automatic stay. Part II describes the circumstances in which courts are tasked with determining whether or not they may reinstate the stay, as well as the methods they use to reinstate. This Part explains that courts base reinstatement on § 105(a), but in doing so have devised a series of formulae that can be synthesized into a basic two-part test in the common law tradition. Part III details § 105’s history, including its broad application by courts in other areas on which the Bankruptcy Code is silent, and explains why the section’s history and its limitation by the Supreme Court in the Law decision renders it unavailable as a tool for reimposing the stay. Part III also discusses two arguments issued from the scholarly community that support the conclusion that § 105 is not an independent source of broad supplemental authority such that it may not be used to reimpose the stay. In Part IV, this Article discusses Levitin’s argument that bankruptcy courts may engage in federal common lawmaking. Part V accepts Levitin’s argument and argues that reimposition of the automatic stay pursuant to the general two-part test explained in Part II is simply an example of federal bankruptcy common lawmaking and is necessary if courts wish to continue protecting the debtor’s right to a fresh start.
Publication Date
April 28, 2015
Citation Information
Daniel J Sheffner. "Resituating the Automatic Stay within the Federal Common Law of Bankruptcy" ExpressO (2015)
Available at: http://works.bepress.com/daniel_sheffner/3/