Bankruptcy - What you need to know about the automatic stay

Bankruptcy's Automatic Stay --
What you need to know.

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Yesterday, April 5, 2009, I wanted to know how to produce evidence in
a hearing regarding violation of the automatic stay. I found a bkforum
which poses as a forum to help people who are facing bankruptcy, but it
didn't even have a topic devoted to the automatic stay, and when I
asked about the stay the main forum guy said it wasn't important
because violations are seldom prosecuted.

Well, Duh! If people don't know about it, how are they going to
prosecute violations? (In my experience the biggest violators were
lawyers and mortgage lenders, so if the forum is run by lawyer I
suppose it wants to protect its own.)

I am getting so angry as I write this that it is hard not to break into a
volley of swearing.

But, I will forebear.

The automatic stay is provided by 11 U.S.C. § 362:

Automatic stay

(a) Except as provided in subsection (b) of this section, a petition

filed

under section 301, 302, or 303 of this title, or an application

filed under

section 5(a)(3) of the Securities Investor Protection

Act of 1970,

operates as a stay, applicable to all entities, of—

(1) the commencement or continuation, including the

issuance or

employment of process, of a judicial,

administrative, or other

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 or against property of

the

estate, of a judgment obtained before the

commencement of the

case under this title;

(3) any act to obtain possession of property of the estate or

property from the estate or to exercise control over

property of the

estate;

(4) any act to create, perfect, or enforce any lien against

property

of the estate;

(5) any act to create, perfect, or enforce against property of

the

debtor any lien to the extent that such lien secures a

claim that

arose before the commencement of the case under

this title;

(6) any act to collect, assess, or recover a claim against the

debtor

that arose before the commencement of the case

under this title;

(7) the setoff of any debt owing to the debtor that arose

before the

commencement of the case under this title against

any claim

against the debtor; and

(8) the commencement or continuation of a proceeding

before the

United States Tax Court concerning a tax liability

of a debtor that

is a corporation for a taxable period the

bankruptcy court may

determine or concerning the tax

liability of a debtor who is an

individual for a taxable period

ending before the date of the order

for relief under this title.

(b) The filing of a petition under section 301, 302, or 303 of this

title, or

of an application under section 5(a)(3) of the Securities

Investor

Protection Act of 1970,

does

not

operate as a stay—

(1) under subsection (a) of this section, of the

commencement or

continuation of a criminal action or

proceeding against the debtor;

(2) under subsection (a)—

(A) of the commencement or continuation of a civil action or

proceeding—

(i) for the establishment of paternity;

(ii) for the establishment or modification of an order for

domestic support obligations;

(iii) concerning child custody or visitation;

(iv) for the dissolution of a marriage, except to the

extent

that such proceeding seeks to determine the

division of

property that is property of the estate; or

(v) regarding domestic violence;

(B) of the collection of a domestic support obligation from

property that is not property of the estate;

property of

the estate or property of the debtor for payment

of a domestic

support obligation under a judicial or

administrative order or a

statute;

(D) of the withholding, suspension, or restriction of a driver’

license, a professional or occupational license, or a

recreational

license, under State law, as specified in section

466(a)(16) of the

Social Security Act;

(E) of the reporting of overdue support owed by a p

arent to

any

consumer reporting agency as specified in section 466(a)

(7) of the

Social Security Act;

(F) of the interception of a tax refund, as specified in

sections 464

and 466(a)(3) of the Social Security Act or

under an analogous

State law; or

(G) of the enforcement of a medical obligation, as specified

under

title IV of the Social Security Act;

F ull text of 11 U.S.C. § 362, available from Cornell.

What makes the Automatic Stay Important to Debtors in
Bankruptcy is section k, Mandatory Damages:

(k) -- this was previously (h)

(1) Except as provided in paragraph (2),

an individual injured by

any willful violation of a stay provided by this section shall

recover actual damages, including costs and attorneys’ fees, and,

in appropriate circumstances, may recover punitive damages.

(2) If such violation is based on an action taken by an entity in the

good faith belief that subsection (h) applies to the debtor, the

recovery under paragraph (1) of this subsection against such entity

shall be limited to actual damages.

In order to prosecute for willful violation of the Automatic Stay I filed
an Adversary Proceeding Complaint for Willful Violation of the
Automatic Stay which stated which chapter I had filed under, the date
of filing and the law:

4. This adversary proceeding for willful violation of the

automatic stay in my Chapter 13, filed on March 21, 2005, under

§301 of Title 11, is

brought pursuant to U.S.C. Title 11, §362,

which operates as a stay applicable to all entities, of—

(I quoted (a) (1),(2),(3),(4),(5),(6),(7), and (8) above.)

In another numbered paragraph I quoted (k).

If you are able to go to a law library you will be able to use the
appropriate Federal Practice Digest (dark blue covers) to look up
Automatic Stay and circumstances similar to your own in order to
identify what case law you want to cite.

Some of the basic case law I've used includes the following:

Fortier v. Dona Ana Plaza Partner

, 747 F.2d 1324 (10th Cir.

1984), “The automatic stay is one of the fundamental debtor

protections provided by the bankruptcy laws. It gives the

debtor a

breathing spell from his creditors. It stops all

collection efforts, all

harassment, and all foreclosure actions.

It permits the debtor to

attempt a repayment or

reorganization plan, or simply to be

relieved of the financial

pressures that drove him into bankruptcy.”

Valley Transit Mix v. Mill

928 F.2d 354 (10th Cir. 1991)

the

stay provisions are broad, they not only protect the

property of the

estate but also prohibit “any act to collect…

or to recover a claim

against the debtor…”

In re Calder

, 907 F.2d 569, “Ordinarily, any action taken in

violation of stay is void and without effect, even where there

is no

actual notice of existence of stay,”

Okay, so that gives you some idea of what I am complaining about in
terms of the codified law and the case law supporting it.

In my case I was served an Amended Complaint (in the foreclosure of
my condo) during the automatic stay, and I was served a magistrate
court complaint by my tenants who had broken their lease and cost me
a huge amount of money, and then wanted their deposits back. Because
I failed to include my tenants in my list of creditors after I became
aware of their demand, I lost that case.

But, basically, service of process is prohibited by the automatic stay.

In the case of my condo the plaintiff, Deutsche Bank National Trust
Company, and its lawyer, proceeded with the foreclosure on the basis
of the Amended Complaint served while I was in bankruptcy and the
stay was in place. The stay "automatically" goes into effect when
someone files bankruptcy.

The stay can be "lifted" if a creditor moves the bankruptcy court to lift
it and the debtor doesn't show a good reason not to lift it. It's really
important to Object to the motion within the time frame provided,
which should be given to the debtor in the form of a Notice of
Objection Deadline accompanying the Motion.

Okay, so about the stay itself. I've been confined to my home, and
often my bed, due to having had tetanus so I do a lot of research for my
pleadings on the internet. I'm no longer well enough to go to the law
library anymore.

There are several sites which have been helpful, but perhaps the most
helpful has been the 10th Circuit Bankruptcy Appellate Panel's Filed
Decision s. (Yes, I lost my original case and now, fall, 2011, I'm
appealing.)

I will put a few links here for you to use in reading up on the Automatic
Stay. Also, these 10 Tips for Effective Brief Writing are excellent. A
click on the preceding link is going to be well worth your time.

If you are in bankruptcy or are thinking about filing bankruptcy you
owe it to yourself to read up on the automatic stay so that you can use
it to protect yourself the way that it was meant to be used.

It really worries me that lawyers ignore violations caused by other
lawyers. It should worry you, too. That's just so corrupt.

My feeling is that this horrible financial crisis could not have happened
if courts were listening to people all along, and not taking the word of
lawyers -- in my case the lawyer for Deutsche lied. He lied in court and
he won. What a creep. Excuse me for devolving into personal dislike for
a lying creep.

Automatic Stay Case Law Links:

In re Scroggin

Cite as 364 B.R. 772 (10th Cir.BAP 2007)

UNITED STATES BANKRUPTCY APPELLATE PANEL OF

THE TENTH CIRCUIT

With regard to § 362(h), this Court has previously held that

"[a] 'willful violation' does not require a specific intent to

violate the automatic stay. Rather, the statute provides for

damages upon a finding that the defendant knew of the

automatic stay and that the defendant's actions which

violated the stay were intentional." Diviney v. Nationsbank

of Tex., N.A. (In re Diviney), 225 B.R. 762, 774 (10th Cir.

BAP 1998) (quoting Inslaw, Inc. v. United States (In re

Inslaw, Inc.), 83 B.R. 89, 165 (Bankr. D.D.C. 1998). In this

case, there is no doubt that the post-petition garnishment of

Debtor's wages was a violation of the automatic stay. It is

not necessary to show a specific intent. It is uncontroverted

that LAC was immediately notified of Debtor's bankruptcy.

Further, LAC's refusal to take affirmative action to get the

garnishment stopped cannot be seen as anything other than

intentional conduct.

We must affirm the bankruptcy court's finding that LAC's

conduct was willful unless we conclude the finding was

clearly erroneous. Diviney, 225 B.R. at 774. Under the

circumstances presented, the bankruptcy court's finding is

factually supported, and it was correct in concluding that

Debtor was entitled to damages and attorney fees.

In addition to finding that LAC willfully violated the stay, the

bankruptcy court found that the violation was egregious.

Therefore, it awarded Debtor punitive damages. Our review

of the bankruptcy court's award of sanctions for a violation

of the automatic stay is for abuse of discretion. Diviney, 225

B.R. at 769.

In re Johnson Cite as 501 F.3d 1163 (10th Cir. 2007)

It is particularly appropriate for bankruptcy courts to

maintain jurisdiction over § 362(k)(1) proceedings because

their purpose is not negated by dismissal of the underlying

bankruptcy case. They still serve (a) to compensate for

losses that are not extinguished by the termination of the

bankruptcy case and (b) to vindicate the authority of the

statutory stay.

In re Soares 107 F.3d 969

1. The Nature of the Stay

. The automatic stay is among the

most basic of debtor protections under bankruptcy law. See

Midlantic Nat'l Bank v. New Jersey Dep't of Envtl.

Protection , 474 U.S. 494, 503 (1986); see also S. Rep. No.

95-989, at 54 (1978), reprinted in 1978 U.S.C.C.A.N. 5787,

5840. It is intended to give the debtor breathing room by

"stop[ping] all collection efforts, all harassment, and all

foreclosure actions." H.R. Rep. No. 95-595, at 340 (1977),

reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97; see also

Holmes Transp. , 931 F.2d at 987; In re Smith Corset

Shops, Inc. , 696 F.2d 971, 977 (1st Cir. 1982).

The stay springs into being immediately upon the filing of a

bankruptcy petition: "[b]ecause the automatic stay is exactly

what the name implies - ´automatic' - it operates without the

necessity for judicial intervention." Sunshine Dev., Inc. v.

FDIC , 33 F.3d 106, 113 (1st Cir. 1994). It remains in force

until a federal court either disposes of the case, see 11 U.S.

C. § 362(c)(2), or lifts the stay, see id. § 362(d)-(f). This

respite enables debtors to resolve their debts in a more

orderly fashion, see In re Siciliano , 13 F.3d 748, 750 (3d

Cir. 1994), and at the same time safeguards their creditors

by preventing "different creditors from bringing different

proceedings in different courts, thereby setting in motion a

free-for-all in which opposing interests maneuver to capture

the lion's share of the debtor's assets." Sunshine Dev. , 33 F.

3d at 114; see generally 3 Collier on Bankruptcy ¶ 362.03

(15th rev. ed. 1996).

In order to secure these important protections, courts must

display a certain rigor in reacting to violations of the

automatic stay. See Kalb v. Feuerstein , 308 U.S. 433, 438-

39 (1940); Holmes Transp. , 931 F.2d at 987-88; Smith

Corset Shops , 696 F.2d at 976. The circuits are split on

whether actions taken in derogation of the automatic stay are

merely "voidable" or, more accurately, "void." Some courts

characterize unauthorized post-petition proceedings as

"voidable." See , e.g. , Jones v. Garcia ( In re Jones ), 63 F.

3d 411, 412 & n.3 (5th Cir. 1995), cert. denied , 116 S. Ct.

1566 (1996); Bronson v. United States , 46 F.3d 1573, 1578-

79 (Fed. Cir. 1995); Easley v. Pettibone Mich. Corp. , 990 F.

2d 905, 911 (6th Cir. 1993). Other courts - a majority,

insofar as we can tell - call such actions "void," but recognize

that equitable considerations may alter some outcomes. See ,

e.g. , Siciliano , 13 F.3d at 751; In re Schwartz , 954 F.2d

569, 571 (9th Cir. 1992); Job v. Calder ( In re Calder ), 907

F.2d 953, 956 (10th Cir. 1990) (per curiam); 48th St.

Steakhouse, Inc. v. Rockefeller Group, Inc. ( In re 48th St.

Steakhouse, Inc. ), 835 F.2d 427, 431 (2d Cir. 1987), cert.

denied , 485 U.S. 1035 (1989); Albany Partners Ltd. v.

Westbrook ( In re Albany Partners, Ltd. ), 749 F.2d 670,

675 (11th Cir. 1984).

Our earlier opinions - which we today reaffirm - align us

with the majority view. See Holmes Transp. , 931 F.2d at

987-88; Smith Corset Shops , 696 F.2d at 976. This

semantic difference has practical consequences because the

characterization of an infringing action as "void" or

"voidable" influences the burden of going forward. Treating

an action taken in contravention of the automatic stay as

void places the burden of validating the action after the fact

squarely on the shoulders of the offending creditor. In

contrast, treating an action taken in contravention of the

automatic stay as voidable places the burden of challenging

the action on the offended debtor. We think that the former

paradigm, rather than the latter, best harmonizes with the

nature of the automatic stay and the important purposes that

it serves. See generally 3 Collier on Bankruptcy , supra , ¶

362.11[1] & n.1 (observing that most courts hold violations

void and terming this the better view).

2. The Availability of Retroactive Relief

. While the

automatic stay is significant, it is not an immutable article of

faith. Indeed, the Bankruptcy Code, 11 U.S.C. § 362(d),

expressly authorizes courts to lift it in particular situations.

Whether this statutory authorization encompasses retroactive

relief is not entirely clear. We previously hinted that a court

may set aside the automatic stay retroactively in an

appropriate case. See Smith Corset Shops , 696 F.2d at 976-

77. We now confirm Smith 's adumbration, holding that 11

U.S.C. § 362(d) permits bankruptcy courts to lift the

automatic stay retroactively and thereby validate actions

which otherwise would be void.

Section 362(d) confers upon courts discretionary power in

certain circumstances to terminate, annul, modify, or place

conditions upon the automatic stay. [6]

On request of a party in interest and after notice and a

hearing, the court shall grant relief from the stay . . ., such as

by terminating, annulling, modifying, or conditioning such

stay -

(1) for cause, including the lack of adequate protection of an

interest in property of such party in interest; . . . .

11 U.S.C. § 362(d). In drafting the law, Congress chose to

include both the power to terminate the stay and the power

to annul it. When construing this language, we must try to

give independent meaning to each word. See United States

Dep't of Treasury v. Fabe , 508 U.S. 491, 504 n.6 (1993);

United States v. Ven-Fuel, Inc. , 758 F.2d 741, 751-52 (1st

Cir. 1985). The only plausible distinction between the two

verbs in this context is that terminating the stay blunts it

prospectively, from the moment the court's order enters,

whereas annulling the stay erases it retrospectively, as of

some date prior to the entry of the court's order (reaching as

far back as the date when the debtor filed the bankruptcy

petition, if the court so elects).

Seen from this perspective, Congress' grant of a power of

annulment is meaningful only if the court may thereby

validate actions taken before the date on which the court

rules. On any other construction, annulment lacks any

independent significance; it merely replicates termination. It

follows, therefore, that section 362(d) authorizes retroactive

relief from the automatic stay. Accord Siciliano , 13 F.3d at

751; Albany Partners , 749 F.2d at 675; see also Franklin

Sav. Ass'n v. Office of Thrift Supervision , 31 F.3d 1020,

1023 (10th Cir. 1994) (recognizing the authority to annul the

stay and thereby grant retroactive relief); Sikes v. Global

Marine, Inc. , 881 F.2d 176, 178-79 (5th Cir. 1989) (same);

see generally 3 Collier on Bankruptcy , supra , ¶ 362.11[1].

3. The Limiting Principle

. Recognizing the discretionary

authority of bankruptcy courts to relieve creditors and other

interested parties retroactively from the operation of the

automatic stay tells us nothing about the yardstick by which

attempts to secure such relief should be measured. We turn

next to this inquiry.

Once again, the overarching purpose of the automatic stay

informs our analysis. Because the stay is a fundamental

protection for all parties affected by the filing of a petition in

bankruptcy, it should not be dismantled without good reason.

See , e.g. , Little Creek Dev. Co. v. Commonwealth

Mortgage Corp. ( In re Little Creek Dev. Co. ), 779 F.2d

1068, 1072 (5th Cir. 1986). Undoing the stay retroactively

should require a measurably greater showing. Congress

intended the stay to afford debtors breathing room and to

assure creditors of equitable distribution. See H.R. Rep. No.

95-595, supra , at 340, 1978 U.S.C.C.A.N. at 6296-97. If

retroactive relief becomes commonplace, creditors -

anticipating post facto validation - will be tempted to pursue

claims against bankrupts heedless of the stay, leaving debtors

with no choice but to defend for fear that post-petition

default judgments routinely may be resuscitated.

We believe that Congress created the automatic stay to ward

off scenarios of this sort. Thus, if congressional intent is to

be honored and the integrity of the automatic stay preserved,

retroactive relief should be the long-odds exception, not the

general rule. In our view, only a strict standard will ensure

the accomplishment of these objectives. See Albany Partners

, 749 F.2d at 675 (explaining that "the important

congressional policy behind the automatic stay demands that

courts be especially hesitant to validate acts committed

during the pendency of the stay"). We conclude, therefore,

that although courts possess a limited discretion to grant

retroactive relief from the automatic stay, instances in which

the exercise of that discretion is justified are likely to be few

and far between.

We do not suggest that we can write a standard that lends

itself to mechanical application. Each case is sui generis and

must be judged accordingly. But, while it is not practical to

anticipate and catalogue the varied circumstances in which

retroactive relief from the automatic stay may be warranted,

some examples may be helpful.

When a creditor inadvertently violates the automatic stay in

ignorance of a pending bankruptcy, courts sometimes have

afforded retroactive relief. See , e.g. , Jones , 63 F.3d at 412-

13 (affirming retroactive validation of a foreclosure sale

where the mortgagee had no notice of the bankruptcy filing);

Mutual Benefit Life Ins. Co. v. Pinetree, Ltd. ( In re

Pinetree, Ltd. ), 876 F.2d 34, 37 (5th Cir. 1989) (similar).

By like token, debtors who act in bad faith may create

situations that are ripe for retroactive relief. See , e.g. ,

Calder , 907 F.2d at 956; Easley , 990 F.2d at 911; Albany

Partners , 749 F.2d at 675-76.

These examples - a creditor's lack of notice or a debtor's bad

faith - clearly do not exhaust the possibilities. But they

illustrate that a rarely dispensed remedy like retroactive relief

from the automatic stay must rest on a set of facts that is

both unusual and unusually compelling. The case law echoes

this conclusion. See Mataya v. Kissinger ( In re Kissinger ),

72 F.3d 107, 109 (9th Cir. 1995) (stating that courts should

indulge retroactive annulment only in extreme

circumstances); In re Pulley , 196 B.R. 502, 504 (Bankr. W.

D. Ark. 1996) (similar).

4. Applying the Standard

. Having constructed the limiting

principle, we now consider whether the bankruptcy court

erred in validating the foreclosure judgment which had been

obtained in violation of the automatic stay. We conclude that

no proper predicate existed for doing so and that the

bankruptcy court therefore abused its discretion in ordering

retroactive relief. See Anderson v. Beatrice Foods Co. , 900

F.2d 388, 394 (1st Cir.) (equating abuse of discretion with a

meaningful error in judgment), cert. denied , 498 U.S. 891

(1990).

Contrary to BCU's importunings, it is the creditor's

knowledge, not the state court's nescience, that is relevant to

the question at hand. Bankruptcy law forbids creditors from

continuing judicial proceedings against bankrupts, see 11 U.S.

C. § 362(a)(1), and, accordingly, it is the creditor's obligation

to inform other courts of the situation, see In re Timbs , 178

B.R. 989, 991 (Bankr. E.D. Tenn. 1989) (collecting cases).

Here, both BCU's knowledge and its failure to act are

undisputed; the debtor immediately notified BCU of the

bankruptcy filing, but BCU kept quiet and permitted the

superior court to proceed in ignorance of the stay. We are

reluctant to reward creditors who, despite notice of a

bankruptcy filing, fail for no discernible reason to notify

courts in which they have initiated proceedings of the

changed circumstances.

The other facts are no more conducive to the bestowal of

retroactive relief. The creditor was represented by counsel

throughout and does not claim that it misapprehended the

effect of the filing. The bankruptcy court made no finding

that Soares acted in bad faith, and, at any rate, the record

does not contain any basis for such a finding. The procedural

errors committed by both parties, such as BCU's failure to

serve Soares with the so-called clarification motion and

Soares' failure to lodge timely objections at various points in

the proceedings, seemingly cancel each other out. And

BCU's entreaty that the equities favor retroactive relief rings

unmistakably hollow; though BCU expended funds to clear

title and maintain the property after foreclosing, this financial

hardship is the natural consequence of its own failure to

abide by the terms of the automatic stay. Thus, it is

unredressable. See K-Mart Corp. v. Oriental Plaza, Inc. ,

875 F.2d 907, 916 (1st Cir. 1989) (declining to deny

permanent injunctive relief which would require substantial

demolition of an expensive structure where "appellant's

wound, deep as it appears, was self-inflicted"). In the last

analysis, BCU is the author of its own misfortune.

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