Does “Act” Mean Also a Failure to Act?

March 02, 2017

No, says the U.S. Court of Appeals for the Tenth Circuit in In re Cowen, adopting the minority rule and parting ways with four other Courts of Appeals. The automatic stay provision of the Bankruptcy Code addressed in Cowen provides that the filing of a bankruptcy petition “operates as a stay … of … any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” Is it a violation of the automatic stay where a creditor who obtained possession of estate property pre-petition merely refuses a demand to turn it over? It is clear that the creditor has control over estate property, but what exactly is the prohibited “act” in this scenario? The majority rule, adopted by the Second, Seventh, Eighth and Ninth Circuits, holds that a mere refusal to turn-over the property is a violation of the stay, but the Tenth Circuit adopted the minority rule, followed by the D.C. Circuit, holding that passive possession alone is insufficient to constitute a violation of the automatic stay.

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