Opinion
No. 78-758EG
August 14, 1979
Stay of Proceedings — Knowledge of Stay — Actual Notice — Contempt
A creditor will be held in contempt of court pursuant to Rule 920(a) of the Bankruptcy Rules of Procedure if it violates the automatic stay provisions of Rule 401(a), despite the fact that it has actual, not formal, notice of the filing of the petition and therefore of the stay.
Before filing the bankruptcy petition, counsel for the bankrupts notified an employee of the creditor bank who was handling the bankrupts' account and informed him that the bankrupts were about to file a petition in bankruptcy. As a result of this information, the bankrupts' account was turned over to the creditor's collection department. On June 5, 1978, counsel for the bankrupts sent a letter to the creditor advising it that a petition in bankruptcy had been filed. Again, on July 7, 1978, the husband-bankrupt, in response to a phone call from an employee of the creditor, stated that bankruptcy proceedings had been instituted. A notation to this effect was made on the bankrupts' file card. Despite this information, the property was repossessed by the creditor on July 10, 1978. On July 12, 1978, formal notice of the filing of the petition was transmitted to the bank.
Rule 401(a) of the Rules of Bankruptcy Procedure provides that "the filing of a petition shall operate as a stay of the commencement or continuation of any action against the bankrupt." Violation of the stay is punishable by contempt under Rule 920a(2). Further, Section 41a of the Bankruptcy Act provides that a person shall not in proceedings before the bankruptcy court disobey or resist any lawful order, process, or writ.
In order to cite a person for contempt, it must be proved that the alleged contemnor had knowledge of the order which he is said to have violated, and the order which is said to have been violated must be "specific and definite." In re Rubin, CCH Dec. ¶ 62,250. These principles were applied to an automatic stay provision in Fidelity Mortgage Investors v. Camelia Builders, Inc., CCH Dec. ¶ 65,865. There it was held that despite the fact that the creditors had not received formal notice from the court of the filing of the petition, because the creditors had actual knowledge of the filing, they could be held in comtempt for violation of the automatic stay under Section 41a and Rule 920. The court specified that violation of an order of the court need not be willful to subject the perpetrator to contempt. However, in this instance it appeared to be the policy of the creditor bank to terminate a repossession order only when it received a formal notice from the bankruptcy court. The creditor had no procedure to verify notifications from bankrupts, or even from their attorneys, that a bankruptcy petition had, in fact, been filed. Post-petition repossession efforts by the creditor bank, which deals repeatedly with bankruptcy cases, are unlawful and contemptuous. Therefore, the creditor was held to be in civil contempt of the bankruptcy court. See Sec. 41a at ¶ 2349, Rule 401 at ¶ 20,121, and Rule 920(a)(2) at ¶ 20,350.