College Columns May 2019 - Page 13

Passive Aggressive?

"Exercising Control" -- Does Section 362(a)(3) Require an Affirmative Act or is Passively Holding an Asset Enough to Violate the Stay?

Doing the Splits:

Circuit Splits Under the Bankruptcy Code

Annette W. Jarvis, Dorsey & Whitney LLP

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For nearly thirty years, courts have been divided on the question of whether a creditor’s passive holding of an asset that is property of the estate can, in and of itself, constitute a violation of the automatic stay pursuant to Section 362(a)(3) of the Bankruptcy Code. With a number of recent decisions from both camps, this split appears likely to persist unless and until the Supreme Court takes up the issue.

Section 362(a)(3) of the Bankruptcy Code provides in part that the filing of a bankruptcy petition operates as a stay to “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.” The question dividing the courts is whether the prohibition against exercising control over property of the estate includes not only overt acts but also a party’s inaction, such as failing to return a repossessed automobile upon notice of the owner’s bankruptcy filing.

The phrase “or to exercise control over property of the estate” was added into Section 362(a)(3) as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984, but without any Congressional explanation. This has led to a debate among the circuits both as to how to interpret the plain language of the statute and the legislative intent behind this statutory revision.

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