Prosecuting Violations of the Automatic Stay

20 Jun

The Automatic Stay and Bankruptcy Law

Section 362 of the Bankruptcy Code

“The Stay”

11 U.S.C. Section 362, otherwise known as the “Automatic Stay,” is perhaps the most well known section in the Bankruptcy Code. The Stay comes into play in every bankruptcy case at the moment the bankruptcy petition is filed with the Court Clerk’s office.

  • Subsection 362(a) delineates the types of matters which are “stayed.”
  • Subsection 362(b) describes the matters which are not bound by the Stay.
  • Subsection 362(c) explains the time period during which the stay operates in cases under various chapters in the Code.
  • Subsections 362(d) – (g) provide the framework for motions filed with the Bankruptcy Court for “Relief from the Stay” to enable a creditor to take action which is otherwise prohibited under subsection 362(a).

Penalties for Violations

Subsection 362(h) describes the penalties that can be assessed for violations of the Automatic Stay. It reads as follows:

(h) An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.

23458820Note that subsection (h) only refers to individuals, Moratzka v. Visa U.S.A., 159 B.R. 247 (Bankr. D. Minn. 1993); corporations which find that they are victims of stay violations must resort to the general contempt powers of the Bankruptcy Court under 11 U.S.C. Section 105 to obtain relief. See In re Chateaugay Corp., 920 F. 2d 183 (2nd Cir. N.Y. 1990); Jove Eng’g v. I.R.S., 92 F. 3d 1539 (11th Cir. Ala. 1996). It is also important to recognize that subsection 362(h) is considered as an additional right for debtors and not foreclosing other remedies that might be available to debtors. 130 Cong. Record 6504 (House March 26, 1984).

This subsection has been interpreted to have a restriction built into the remedies available: the violation must be “willful” in order for damages and attorneys’ fees to be awarded. An example of how “willful” has been defined some courts is contained in Atkins v. Martinez, 176 B.R. 1008 (Bankr. D. Minn. 1994): “The element of deliberation that is contemplated here, of course, is the specific intent to proceed with an act, knowing that it is proscribed by a court order”.

Recently, the First Circuit decided Fleet Mortgage Group, Inc. v. Kaneb, 1999 WL 1006329 (1st. Cir.) and described how “willful” will be defined in this circuit.  The Court concluded that a willful violation does not require a specific intent to violate the stay. The standard under Subsection 362(h) is met if there is knowledge of the stay and the defendant intended the actions which constituted the violation. Kaneb, supra. at 2. Further, where the creditor received actual notice of the automatic stay, courts must presume that the violation was deliberate. Kaneb, at 2. Finally, the First Circuit gave guidance as to the burden of proof in stay violation actions. “The debtor has the burden of providing the creditor with actual notice. Once the creditor receives actual notice, the burden shifts to the creditor to present violations of the automatic stay.” Kaneb, at 2.

The Harm Caused by a Violation

Also of interest in the Kaneb case is that the debtor was awarded damages in the sum of $25,000 for emotional distress and $18,200.68 in attorneys’ fees and costs of appeal. The emotional distress damages were deemed appropriate, in part, due to the specificity with which the debtor was able to describe the harm he suffered as a result of the bank’s stay violations. Counsel should carefully read this decision to learn what to do (and not to do) in prosecuting and defending stay violation actions under subsection 362(h).

Litigating a Violation

There are two types of proceedings that can be brought: a “motion for order to show cause” which requests the Court to issue an order requiring the offending creditor to appear before the Court and explain its conduct (reminiscent of Ricky Ricardo telling Lucy that she “has some esplainin’ to do”); or a formal adversary proceeding (summons and complaint). Either mechanism for bringing the mater to the Court’s attention appears to be equally effective, unless the creditor is an individual or business with few contacts with Maine – in that scenario, the summons and complaint process is best to catch the attention of the offending creditor.

The Kaneb decision should be well cited for years since it may spawn a new pursuit of stay violators. While debtors may have been willing to let creditors off the hook with minor sanctions for a stay violation in the past, more significant sanctions could be sought in these matters in the future. The prospect of stay violations by credit card companies can only increase as the card companies and/or their accounts are bought and sold. Currently, credit card accounts in bankruptcy are considered commodities to be exchanged. It is expected that the selling companies will not always adequately label the accounts they package for sale and that the buying companies will not have adequate procedures in place to address bankruptcy concerns. Automatic Stay violators beware!

One Response to “Prosecuting Violations of the Automatic Stay”

  1. April July 30, 2017 at 8:22 am #

    Can I void a bankruptcy dismissal due to interference and intentional disregard of the notice of stay by a 3rd party and is this sufficient to void the resulting trustees deed to a 3rd party bidder that is an investor corporation?

    I filed a chapter 13 May 9th, On May 11th my water was turned off and shortly after my power. I explained to the utility management and brought documentation of the filing but they dismissed entirely and required the full balance of 1700 to turn back on. I have suspected power theft for nearly 8 months but they completely dismiss my claim of this so I had to further investigate and later found evidence of such for them to continue to ignore me. I have suffered tremendous financial and physical hardship and distresss and my bk was dismissed because of my inability to provide documentation required within 14 days, my difficulty communicating with and commuting to the court and inability to prepare requested items with slim to no power on my computer equipment on top of added financial stresses severely hindered my ability to help myself here. I was without water or power for almost 2 months . Utility company would not allow me to pay the water portion of the bill to reinstate this service in the least , they continued to insist on the nearly $2,000 balance that was only covering 2 billing months with only me here hardly using a lightbulb. I typically rent the front unit but prior tenants could not afford the electricity charges, After they moved I simply couldn’t rent until I was able to resolve the billing issue at hand and avoid water shut offs each month. These utility natzis are a division of the actual city, a municipality, not under the public utility commission jurisdiction and service the billing for water sewer trash and electricity. I live on site, this is my primary residence and the other single family home on site is,supposed,to be providing income as a rental but has been vacant for an overly ridiculous amount of time due to this utility staff ignoring my situation entirely. Please reference my question above and let me know if you have any further questions pertaining to these details. I am trying to prepare a motion to void the dismissal based on these facts and hoping this will have a retro effect on all matters of time my property was not protected by the stay. Please advise if this is possible and what else is necessary to receive a fair chance at retaining title while having the proper resources to safely utilize any options available in reinstating this mortgage and get back on level ground.

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