“Bad Behavior” can catch up to you under 11 U.S.C.

In re Bright 338 BR 530 BAP 1st Cir 2006 retroactive stay relief db bad behavior

Debtors be careful and creditors be on the lookout.  While it’s a long way, away from Christmas, debtors’ “bad behavior” can come back to haunt you with retro-active stay relief.  It is well settled in this circuit that actions taken in violation of the automatic stay are void and without legal effect.  See Soares, 107 F.3d at 976 (actions taken in violation of the automatic stay are void, unless there are equitable considerations); see also Mann v. Chase Manhattan Mortgage Corp., 316 F.3d 1, 3 (1st Cir.2003); ICC v. Holmes Transp., Inc., 931 F.2d 984, 987-88 (1st Cir.1991).

The First Circuit Court of Appeals has recognized that bankruptcy courts are authorized to annul the automatic stay retroactively, when equitable considerations warrant, to validate actions which otherwise would be void. See Soares, 107 F.3d at 975-76.  Because the stay operates as a “fundamental protection for all parties affected by the filing of a petition in bankruptcy,” retroactive relief is an extraordinary measure and the circumstances that justify it are likely to be “far and few between.” Id. at 977. Accordingly, it is the offending creditor’s burden to demonstrate that its void actions should be validated “after the fact.” Id. at 976. This “best harmonizes with the nature of the automatic stay and the important purposes that it serves.” Id. Therefore, when a creditor seeks post facto annulment of the stay, it must show extreme circumstances, with facts both “unusual” and “unusually compelling.” Id. at 977.   The creditor in this case successfully demonstrated those unusual and compelling circumstances and obtained retro-active relief.