Violation Of the Bankruptcy Stay

1 Feb

Acts Taken in Violation of the Stay
If a party has received actual notice of the stay, violation of it is contempt, leading to fines, attorney’s fees and in some courts, damages, fin re Zartun (Bank. App. 9th Cir. 1983) 30 B.R. 543.] Under 362(h), an individual injured by a willful (knowing, but not necessarily malicious) violation of the stay can sue for damages, costs, and attorney’s fees. A violation which is initially innocent becomes willful if the violator proceeds or refuses to correct the situation after receiving notice of the filing of the petition.
The majority of the cases and the major commentators state that acts taken in violation of the automatic stay are void. [In re Posner (9th Cir. 1983) 700 F.2d 1243, cert, den. 464 U.S. 848.] The acts are void whether or not the violator had notice of the stay. Collier on Bankruptcy (15th Ed.) § 362.11 at 362-73.] However, in the Ninth Circuit the sale may only be “voidable” if the violation of the stay is a “technical” violation. in re Brooks (Bank. App. 9th Cir. 1987) 79 B.R. 479.] In Brooks, the defendant re-recorded a deed of trust to correct a mistake in the legal description without knowledge that one of the property owners had filed a petition under Chapter 7. When the other property owner attempted to void the lien in her later bankruptcy, the court held that the re-recording was only voidable at the discretion of the first debtor’s trustee and that the trustee had not opted to
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void the transaction.
This is critical in the foreclosure context because a void sale could be set aside even against a bona fide purchaser if made in violation of the stay. Section 549(c) creates an exception when a good faith purchaser without knowledge of the bankruptcy purchases the property for a fair equivalent value and the transfer has been perfected prior to the filing of notice of the bankruptcy petition in the county recorder’s office where the property is located.

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One Response to “Violation Of the Bankruptcy Stay”

  1. Rose July 14, 2012 at 11:13 am #

    Question: I filed a chapter 7 BK mainly (but not limited to) to stay in my home to avid eviction before the Sheriff came to evict; when the Sheriff came days after I had filed and was protected by the stay; I was told that the 3rd party (which I have proof they received notification of the stay) went to the Sheriff after the fact (but before the Sheriff received paperwork) to come and evict us! When I showed the BK to the Sheriff, he told me that the 3rd party had been to the office requesting the eviction. I have proof that the 3rd party was trying to get us evicted before the Sheriff knew of the BK filing.

    So could this violation of the stay by the 3rd party cause the BK court to void the Unlawful Detainer suit or future eviction. Our Wrongful Foreclosure case is just getting started with the review of the Answers this coming week. Also I have my BK 1st meeting end of the month; do I have right for I know they willing tried to have us evicted when they knew of the stay?

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