The automatic stay' is undeniably one of the most important elements of the bankruptcy process. In fact, the expansion of the stay was one of the major changes that the 1978 Bankruptcy Reform Act initiated. Despite the integral nature of the automatic stay, however, courts have yet to reach a consensus regarding the conceptualization and subsequent effect of actions taken in violation of the stay. Presently, a substantial majority of the circuits hold that such actions are void "ab initio" and of no legal effect. A small but significant number of courts, however, decline to follow the majority rule. These courts instead hold that violations of the stay are voidable and capable of cure.
The debate between the advocates of these two opposing rules can best be understood as a conflict between bankruptcy policy concerns, on the one hand, and the demand for coherent Code interpretation on the other." The proponents of the void rule, relying mainly upon policy concerns, argue that courts should hold stay violations absolutely void in order to deter such violations, and thereby further the overriding protective purposes of the automatic stay. The proponents of the voidable rule, however, argue that such a characterization is overly broad, inflexible and inconsistent with various provisions of the Bankruptcy Code. The voidable rule advocates contend that the voidable rule is a statutorily consistent and theoretically superior alternative. The case law has consistently presented the void-voidable controversy as a conflict be- tween these two opposing viewpoints. As a result, the debate thus far has been constrained by the terms of its own proponents. Neither side has ever examined the incentives that the different rules create, nor the effect that these incentives have upon information transfer between the debtor and the creditor concerning the debtor's filing of a bankruptcy petition.
Robert R. Niccolini,
The Voidability of Actions Taken in Violation of the Automatic Stay: Application of the Information-Forcing Paradigm,
45 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol45/iss6/6