Violations of Automatic Stay in Chapter 7 Bankruptcy

In addition to the long-term gains of filing for a Chapter 7 bankruptcy in Washington D.C., there is the short-term benefit of the automatic stay.

Per 11 U.S.C. 362, the automatic stay bars creditors from collecting on debts once the debtor has initiated bankruptcy proceedings. Efforts that violate the statute could include:

  • Enforcement of a judgment obtained prior to the bankruptcy;
  • Any act to gain possession or exercise control over property in the bankruptcy estate;
  • Any attempts to enforce or create a lien against bankruptcy estate property;
  • Any attempt to collect or recover claims against a debtor that arose prior to the filing.

Violations of this could be prosecutable offenses, and may also violate 15 U.S.C. 1692, which covers abusive debt collection actions under the Fair Debt Collection Practices Act. D.C. bankruptcy attorneys can help you stop unfair and illegal debt collection practices.

Recently in Lodge v. Kondaur Capital Corp., plaintiffs brought action against a creditor whom they alleged violated the automatic stay following their bankruptcy.

A summary judgment in favor of the defense was affirmed on review by the U.S. Court of Appeals for the Eleventh Circuit on the grounds that the plaintiffs had failed to prove two key points: Proof of an emotional injury that was sufficient to support recovery of actual damages and failure to demonstrate that the defendants were “debt collectors” under the statute.

Still, the case is a good example of how creditors frequently attempt to skirt the law – and why you need an experienced attorney to help guide you through it.

Here, the plaintiffs, a married couple, together obtained a $157,000 mortgage loan from the bank. A promissory note was signed, and a security deed executed, giving the bank the right to foreclose on the property.

Five years later, the plaintiff filed a Chapter 13 bankruptcy petition. Similar to Chapter 7 protections, the automatic stay went into effect, shielding the plaintiff from any efforts to collect on any outstanding loans or enforce on any liens – including the mortgage.

In 2008, the bank filed a motion for relief from the bankruptcy stay, asserting that the plaintiff had defaulted on the promissory note and requested the stay be lifted so that the bank could exercise its foreclosure rights under the security deed. The bankruptcy court did not rule on this motion.

After that, the bank reassigned its interest to another home loan services firm, in this case the named defendant. The following year, an amendment to the earlier motion for relief was filed, requesting the automatic stay be lifted so that the new owner of the security deed could exercise its rights. The bankruptcy court never ruled on the amended motion either.

Still, the defendant moved forward with a foreclosure referral and notice of sale. The notice was published one time in a single local newspaper, and the couple in the midst of the bankruptcy never saw it. A sale date was set, but the sale was canceled.

The following year, the Chapter 13 plan was completed and all debts, including the mortgage loan in question, were discharged. The bankruptcy court never ruled on the motions for relief, so the stay remained in effect throughout the course of the bankruptcy.

Following the discharge of the bankruptcy, the plaintiffs filed a two-count complaint against defendants, alleging that the notice of sale violated the automatic bankruptcy stay and also the FDCPA.

The couple claimed that while they had not suffered actual economic damages, they were entitled to assert damages for emotional distress. The pair said the notice of sale was a strain on their marriage, relationships with their children and their careers.

Still, the court found that the couple failed to show the infliction of sufficient emotional distress, or that the creditor was legally a “debtor.”

Consumers who file for bankruptcy protection are entitled to relief under the law. We’re here to help.

Contact Harris S. Ammerman, bankruptcy attorney serving Washington D.C., Maryland and Virginia, by calling (202) 638-0606.

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Harris Ammerman

Since 1986, we have helped more than 10,000 clients and their families file for bankruptcy – more than any other firm in the region. We have more 50 years of combined experience and are conveniently located in the heart of Washington, D.C.
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