In re Gasprom: Foreclosure After Abandonment, Before Closure of Chapter7 Case, Violated Automatic Stay

On behalf of Macdonald Fernandez LLP on Wednesday, December 11, 2013.

In In re Gasprom, 500 B.R. 598 (9thCir. BAP 2013), the Bankruptcy Appellate Panel of the United States Court of Appeals for the Ninth Circuit held that a lienholder violated the automatic stay in bankruptcy by foreclosing on assets abandoned by the trustee before the corporate debtor's chapter 7 case was closed.

Following conversion of the case from chapter 11, the trustee moved to abandon the estate's chief asset, which was a defunct gas station with permitting and hazardous waste issues. The asset was fully encumbered by a lien. The bankruptcy court granted the motion over the debtor's objection (citing In re D'Annies Restaurant, 15 B.R. 828 (Bankr. D.M.N. 1981)) and noted that the effect of the abandonment would be to terminate the automatic stay. The lienholder foreclosed later that day, and the case was closed shortly thereafter.
The debtor filed a motion to reopen the case so that it could set aside the foreclosure and recover for the alleged violation of the automatic stay. The court reopened the case but denied the motions in advance, ruling that upon entry of the abandonment order, the automatic stay no longer enjoined the sale, and that the court would annul the automatic stay sua sponte to the extent necessary.
The BAP reversed, holding that although the collateral left the estate upon abandonment, the automatic stay remained in effect with respect to property of the debtor under Bankruptcy Code Section 362(a)(5). The BAP declined to follow authorities holding that the automatic stay only protects the property of an individual debtor (and not a corporate debtor) following abandonment. Instead, the court followed authorities holding that abandonment returns property to the debtor nunc pro tunc as if no bankruptcy petition had been filed.