Violations Of The Automatic Stay: Willful Or Technical? Void Or Voidable? Distinctions Without A Difference

• Jurisdiction: United States,Federal,California
• Law Firm: Cullen and Dykman
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Author: Mr Michael Traison and Jocelyn E. Lupetin
• Published date: 26 January 2023

A decision issued last month by Hon. Christopher D. Jaime of the U.S. Bankruptcy Court, Eastern District of California, touches upon several aspects of bankruptcy law which are of interest to creditors and debtors alike. Valentine v. Holmes, et al., 2022 WL 17408093, Case No. 22-21184-B-13, Adversary No. 22-2086 (Bankr. E.D. Cal. Dec. 2, 2022). While the important points are distilled below, a reading of the entire decision is encouraged due to the specifics of the case.

The Valentine decision does away with the distinction between willful and technical violations of the automatic stay of 11 U.S.C. ' 362(a) and holds that all acts taken in violation of the stay "are void and of absolutely no effect whatsoever regardless of whether the acts are willful or so-called 'technical' automatic stay violations."¹ We have discussed issues related to the automatic stay provision in prior alerts² and cannot overstress the need for creditors to remain vigilant and wary of potential violations.

As highlighted previously, stay violations come in two flavors - willful and technical.

A willful violation exists when a party knew of the automatic stay and the actions taken in violation of the stay were intentional.³ The presence of intention is irrelevant, however, as only the actions taken must be intentional.⁴

Meanwhile, a technical violation may occur when actions are taken without notice of the bankruptcy case or knowledge of the automatic stay.⁵

Judge Jaime rejects the so called "Brooks exception" holding that, "all acts that violate the automatic stay are void without regard to any knowledge or notice of a bankruptcy case or the automatic stay."⁶ He notes the difference in types of violations acknowledging there may be support among the judiciary for the notion that, while willful violations are always void, technical violations may only be voidable.

This case is another reminder of the importance of observing the restrictions of the automatic stay upon the filing of a bankruptcy case. Lack of knowledge of the filing of a petition in bankruptcy or of the existence of the stay may not longer act as a defense to allegations of stay violations or allow a creditor to argue that a...