Bankruptcy Court Addresses Eligibility, Non-formal Notice of Bankruptcy and a Creditor’s Affirmative Duty to Correct Technical Violations of the Automatic Stay

Posted by NACBA - February 21, 2019

A bankruptcy court recently ruled on several issues of importance to all potential debtors. First, the court examined the effect of a prior dismissal order (for failure to timely file certain schedules, statements or other documents) on a subsequent bankruptcy petition. Specifically, the court examined the small slice of cases where the automatic stay does not apply in a second case when the Debtor is not an “eligible Debtor” under 11 U.S.C. § 109(g). The court also examined the split in authority on who bears the burden of proof of proving eligibility.

Further the court examined whether a creditor, who unknowingly completed a foreclosure sale during the second case, violated the automatic stay by not promptly undoing the sale upon notification of the bankruptcy. Further the court extensively discussed the different non-traditional methods that creditors can receive binding notice of a bankruptcy and their responsibility thereafter. The court also examined whether a technical violation can turn into a willful violation and whether a creditor has an affirmative duty to correct a technical violation.

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