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DE Bankruptcy Court Decision Provides Reminder of Potential Consequences of Violating the Automatic Stay
An opinion from the U.S. Bankruptcy Court for the District of Delaware provides a reminder of the potentially severe punishment that a party can suffer as a result of its violation of the automatic stay of Section 362 of the Bankruptcy Code, even if the debtor does not suffer any actual damages as a result of the violation.
In general, the automatic stay forbids creditors from taking offensive actions against a debtor outside of the confines of the debtor's bankruptcy case, including efforts to collect debts or pursue litigation against the debtor, exercise control over the debtor's property, or terminate or interfere with the debtor's property interests. Subsection (k) of Section 362 provides for sanctions in favor of the debtor against creditors who violate the automatic stay.
In In re Healthcare Real Estate Partners (Healthcare Real Estate Partners v. Summit Healthcare REIT), AP No. 16-50981, (Bankr. D. Del. Nov. 14, 2023), a group of petitioning creditors filed an involuntary Chapter 7 petition against the debtor as part of a scheme to terminate the debtor's role as the manager of two investment funds. Following the commencement of the bankruptcy case, the petitioners, in violation of the automatic stay, in fact did terminate the debtor's position as manager of the two funds, and then proceeded to dissolve the two funds.
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