Chapter 11, C. Willful Violation of the Automatic Stay

• Jurisdiction: United States

C. Willful Violation of the Automatic Stay

Section 362(k)(1) of the Bankruptcy Code provides: "[A]n 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." Most courts hold that only a natural person may recover for a willful violation of the automatic stay.³¹² Corporate debtors are not without recourse and can institute contempt proceedings against the party violating the automatic stay.³¹³ The minority of forums, including the popular Third Circuit, have adopted the view that § 362(k)(1) applies to both individual and corporate debtors.³¹⁴

The Bankruptcy Code does not define the term "willful." Some courts have defined willful as "a deliberate and intentional act done with the knowledge that the act is in violation of the stay."³¹⁵ Other courts adopting a broader definition find that a violation of the stay is willful if the creditor "(1) has knowledge of the petition, and (2) the act which violates the stay was intentional."³¹⁶ This broader version "does not require a specific intent to violate the automatic stay[,]" just that the defendant intentionally committed the action that led to the automatic stay violation.³¹⁷ At the same time, some courts also recognize a "good faith" exception where "(1) the law on the issue is not settled, and (2) the defendant has persuasive legal authority indicating that his or her actions do not violate the stay[.]"³¹⁸

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Notes:

^[312] In re Am. Chem Works Co., 235 B.R. 216, 219 (Bankr. D.R.I. 1999) (collecting cases).

^[313] In re Chateaugay Corp., 920 F.2d 183, 187 (2d Cir. 1990) ("For other debtors, contempt proceedings are the proper means of compensation and punishment for willful violations of the automatic stay.").

^[314] In re Atl. Bus. & Cmty. Corp., 901 F.2d 325 (3d Cir. 1990).

^[315] Forty-Eight Insulations Inc. v. Lipke (In re Forty-Eight Insulations Inc.), 54 B.R. 905, 909 (Bankr. N.D. Ill. 1985).

^[316] Putnam v. Rymes Heating Oils Inc. (In re Putnam), 167 B.R. 737, 740 (Bankr. D.N.H. 1994). See also Johnston Envtl. Corp. v. Knight (In re Goodman), 991 F.2d 613 (9th Cir. 1993); Crysen/Montenay Energy Co. v. Esselen Assoc. (In re Crysen/Montenay Energy Co.), 902 F.2d 1098 (2d Cir. 1990).

^[317] Atl. Bus. & Cmty, 901 F.2d at 329.

^[318] In re Montgomery Ward LLC, 292 B.R. 49, 57 (Bankr. D. Del. 2003) (citing University Medical Ctr. v. Sullivan, 973 F.2d 1065...