Recent Developments In Bankruptcy Law, July 2021

1. AUTOMATIC STAY

1.1 Covered Activities

1.2 Effect of Stay

1.3 Remedies

1.3.a Court denies retroactive stay relief that would validate default judgment. The debtor did not notify a tort claimant of his chapter 11 filing. The claimant filed an action against the debtor after the bankruptcy filing. The debtor did not respond, and the claimant obtained a default judgment. The debtor's case was dismissed for failure to prosecute. Later, the debtor filed a second chapter 11 case, which was converted to chapter 7. The claimant sought retroactive stay relief to validate the prior default judgment. An act taken in violation of the automatic stay is void. However, section 362(d) permits annulment or retroactive stay relief, which would validate a prior action taken in violation of the stay. A court should not grant retroactive relief to validate a default judgment. The debtor may justifiably rely on the stay to be automatic and to relieve the debtor from any