Chapter 8 - § 8.2 AUTOMATIC STAY — BANKRUPTCY CODE § 362(a)

• Jurisdiction: Colorado

§ 8.2 AUTOMATIC STAY — BANKRUPTCY CODE § 362(a)

The automatic stay is one of the, if not the, most important protections provided to a debtor and its bankruptcy estate:

The automatic stay . . . is designed to prevent a chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts. The stay insures that the debtor's affairs will be centralized, initially, in a single forum in order to prevent conflicting judgments from different courts and in order to harmonize all of the creditor's interests with one another.⁵

The automatic stay lives up to its name: it is automatic. Creditors that do not receive notice of a bankruptcy yet take actions against the debtor's property often complain that the stay should not apply because they did not receive notice. This argument always fails and could lead to a motion for sanctions, or at a minimum a lecture by the judge to both counsel and client; moreover, any act in violation of the automatic stay is void.⁶ An exception to this rule is where the creditor was not aware of the stay and a debtor's unreasonable actions led to the creditor's violation.⁷

Any action to proceed with a mechanics' lien foreclosure (other than taking the appropriate action to perfect such a lien) is a violation of the automatic stay and will lead to sanctions against the party and possibly its counsel. Moreover, note that any action to collect a debt against the debtor is stayed, even if the action is not against the debtor.⁸

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Notes:

^[5] Wilson v. Unioil (In re Unioil), 54 B.R. 192, 193 (Bankr. D. Colo. 1985) (citations omitted); see Pursifull v. Eakin, 814 F.2d 1501, 1504 (10th Cir. 1987).

^[6] Ellis v. Consol. Diesel Elec. Corp., 894 F.2d 371, 372-73 (10th Cir. 1990).

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