## Facts

- Napoleon G. Soares purchased a home financed by a $70,000 note to Brockton Credit Union (BCU), secured by a first mortgage.
- After falling behind on payments, BCU filed a foreclosure action in Massachusetts superior court; Soares did not answer.
- On March 24, 1995, Soares filed a Chapter 13 petition, triggering the automatic stay under 11 U.S.C. § 362(a); he promptly notified BCU, but neither side notified the state court.
- After the bankruptcy filing, the state court entered a default order (April 10, 1995) and then authorized entry of a foreclosure judgment (approximately one week later).
- BCU later moved in bankruptcy court for stay relief (June 14, 1995) without disclosing the postpetition state-court default and foreclosure judgment; the motion was unopposed and granted (June 29, 1995).
- Following a later missed payment, BCU proceeded under the state foreclosure judgment; at a November 29, 1995 sale, BCU bought the property and paid delinquent municipal taxes to clear title.
- The bankruptcy court later retroactively annulled the stay back to the petition date to validate the state-court default, foreclosure judgment, and ensuing sale; the district court affirmed.

## Issues

1. Whether the state court’s postpetition entry of default and foreclosure judgment were “ministerial acts” exempt from the automatic stay under 11 U.S.C. § 362(a).
2. Whether, and under what standard, a bankruptcy court may retroactively annul the automatic stay under 11 U.S.C. § 362(d) to validate actions taken in violation of the stay.

## Decision

- The court held the postpetition state-court default and foreclosure judgment were not ministerial and violated the automatic stay.
- The court treated actions taken in violation of the automatic stay as void absent a valid annulment of the stay.
- The court recognized that § 362(d) permits retroactive annulment of the stay, but only in unusual and unusually compelling circumstances.
- The court ruled that retroactive annulment was an abuse of discretion on these facts, given the creditor’s notice of the bankruptcy and related equities.
- The court reversed the judgment affirming the bankruptcy court’s retroactive annulment and remanded for further proceedings consistent with its ruling.

## Legal Principles

- The automatic stay under 11 U.S.C. § 362(a) broadly bars postpetition acts to obtain or enforce judgments against the debtor or estate property.
- A narrow “ministerial acts” exception may allow purely clerical, nondiscretionary steps that merely memorialize or implement a prepetition decision; it does not cover postpetition judicial actions requiring discretion (such as entry of default and foreclosure judgment).
- Actions taken in violation of the automatic stay are void unless the stay is properly annulled.
- Under 11 U.S.C. § 362(d), bankruptcy courts may “annul” the stay retroactively, but such relief is exceptional and depends on compelling equitable circumstances, including lack of notice, good faith, and prejudice from unwinding the transaction.
- A creditor with notice of the bankruptcy, and especially one that fails to make candid disclosure in stay-relief proceedings, faces a heavy burden to justify retroactive annulment.

## Conclusion

The First Circuit held that postpetition state-court foreclosure orders entered after a Chapter 13 filing were barred by the automatic stay and not protected as ministerial acts, and it limited retroactive annulment of the stay to rare cases, reversing the annulment granted on these facts.


In re Soares, 107 F.3d 969 (1st Cir. 1997)