January 21, 2020

Do I Have to Give Back the Car I am Financing if I File a Chapter 7?

I have a question about the blog in Nov,2006.  You said that filing bankruptcy can stop car repossion .  But after you file chapter 7 do you get to keep the car and the debt is discharged or you can keep the car only if you promise to make payments on tht vehicle.  Because I have been told the only way you can keep the car when filing chapter 7 is if you promise to make payments and you do not include it in your chapter 7 bankruptcy.  I was told if you owe on the vehicle and place it in your chapter 7 bankruptcy you have to give the car back. Could you give me some insight.

Jonathan Ginsberg responds:  Fana, the minute you file a bankruptcy, all creditor action stops because of something called the "automatic stay."   There are a few exceptions to the automatic stay (i.e. multiple filings, child support debt, and a few other limited categories), but as a rule, all creditor action stops the minute you file.

Chapter 7 is primarily designed to get rid of unsecured debts like credit cards and medical bills.  In a Chapter 7, secured debts must be either reaffirmed or the collateral must be surrendered to the secured creditor.

Automobile loans are considered secured debts because the vehicle you purchased serves as security for the loan.  If you want to keep your vehicle in a Chapter 7, you must reaffirm it.  Reaffirmation of a vehicle loan is voluntary on the part of the secured creditor.  Generally, most car lenders will reaffirm if:

you are current with your payments

you have enough income to pay for the reaffirmed debt in your budget

your are able to shelter (exempt) your equity, if any, as part of your Chapter 7 petition

If the creditor refuses to reaffirm your choices are to surrender the vehicle or to convert to Chapter 13 where you can try to force a repayment down the lender’s throat.

If you do nothing – do not reaffirm and do not state any intention, the Bankruptcy Code will presume that your intention was to surrender and after the bankruptcy is over, the secured lender can repossess the vehicle.  Note that in this situation you would have no personal liability for a repossession deficiency – the Chapter 7 discharge serves to wipe out your personal liability.  However, the lien (in rem jurisdiction) that encumbers the vehicle remains and survives the bankruptcy.

So, if you are financing a vehicle and you file Chapter 7, there is a good chance that you can keep your vehicle if you qualify for a reaffirmation.

Will a Bankruptcy Filing Stop the Enforcement of a Judgment Lien

First – I LOVE your blog – you have great info!!  Little background.  Discover card sued us for around $15,000 on cc debt, we disputed etc and after going back and for in court the attorney who BOUGHT the debt filed for summary judgment, we filed for a motion to reconsider.  Judgment was granted on 8/13 and our motion to reconsider was heard on 9/4.  The judge denied the motion to reconsider and at that time I informed him we signed papers and paid/hired an attorney to file bankruptcy.

They judge did not say anything about re-affirming the summary judgment he just said he denied our motion to reconsider and right after that I gave him the paperwork where we hired attorney and paid to start BK proceedings.  We are pretty sure we are going to have to file chapter 13.  My question is this – we received paperwork today – 9/13 that since the court entered judgment against us on 8/13 they were filing a judgment lien- it did not specify on what.
My question is can this be enforced or will the BK stay or stop the judgment/lien?

Jonathan Ginsberg’s response:  First, thank you for the kind words about my blog.  I can alreay tell that you are a perceptive and intelligent reader. 

You did not say where you live, so I’ll answer as if you were in Georgia, where I practice.  If you live outside of Georgia, my observations may not be correct.

A judgment lien in Georgia attaches to any and all property you own.  It can also be used to garnish your wages.  As such a judgment lien is considered a secured debt since all of your property secures it.

If you file a bankruptcy, all action to enforce or perfect the lien would stop immediately pursuant to the automatic stay.  During the course of your bankruptcy you and your counsel should consider filing a Motion to Avoid the Judicial Lien pursuant to Section 522 of the Bankruptcy Code.  If the judicial lien is avoided the secured judgment lien becomes an unsecured debt paid at the same percentage as your other unsecured debts.  If you don’t avoid the lien, the judgment lien will be paid in full by the trustee as a secured claim.

[tags] judgment liens, Motion to Avoid Lien, 522 Motion, judgment creditors, enforcement of judgment [/tags]

A Review of Mortgage Foreclosure Laws in Georgia – How a Bankruptcy Filing Stops Foreclosure

The threat of a mortgage foreclosure serves as a prime motivating factor for many Chapter 13 bankruptcy filings.  As an attorney who practices in this area, I sometimes forget that frightened, stressed out homeowners who are actually facing foreclosure may not realize exactly how or why a Chapter 13 can save their home.  Therefore, in this post, I would like to review a little about foreclosure law in Georgia and discuss the strategy of using Chapter 13 to stop the foreclosure and reinstate the mortgage.

Georgia law provides for something called a "non-judicial" foreclosure.  This means that a foreclosing lender in Georgia does not need to go to court to get a judge's permssion to take title to a home through a foreclosure.  Instead, the lender is required to fulfil various contractual and legal requirements to pursue a foreclosure.

First, the lender must declare the loan in default.  When you purchased your home, you signed a number of binding legal documents, including a promissory note and a deed to secure debt.  In these documents you borrowed a certain sum of money in exchange for which you promised to pay a specified mortgage payment to the lender each month.  The documents you signed also provided that the mortgage loan was secured by specific collateral – usually your home.  In the event that you fail to pay the installment note as agreed, the note goes into default, triggering a number of consequences.

The most important consequence is some called "acceleration," which means that the entire balance due on the mortgage comes due. Typically, mortgage companies assert their right to accelerate a mortgage after you are three or four months behind – although technically, they could accelerate if you were one day late.

Once your loan is accelerated, you will find that most mortgage lenders are unwilling to reinstate the loan voluntarily.  I suspect that mortgage lenders do not want to be bothered with monitoring numerous repayment agreements in loans that have gone into default.  Sometimes mortgage lenders will work with private companies who promote their services as "mortgage savers," although these home saving programs do not always work as advertised.  Some lenders will not commit to a repayment plan but keep the homeowner hanging on until literally the day before foreclosure before deciding not to cooperate.   If you choose to use one of the mortgage saver services, pay attention to your costs and do not pursue relief in this manner unless you can be assured of a decision well before the last minute.

Once the loan has been accelerated per the loan contract, the lender must abide by Georgia State law in terms of giving you proper notice about the pending foreclosure.  Besides notifying your by mail, the lender must advertise the property for sale in the legal newspaper in the county where the property is located. 

The legal newspaper for your county is not the Atlanta Constitution.  Instead the legal newspaper may be a paper unknown to you.  For example, the legal newspaper in Fulton County is the Fulton County Daily Report.  In Dekalb County, it is The Champion Newspaper and in Gwinnett County it is the Gwinnett Daily Post.  A complete list of the legal newspapers for every county in the State of Georgia may be found by clicking the link.  If this link does not work, you can search for the list of legal organs in Georgia at the Secretary of State's web site.

The pending foreclosure sale must be advertised for four consecutive weeks preceding the sale.  Foreclosure sales are only allowed on the first Tuesday of each month.

If the lender has given you proper notice and has advertised the sale as required by law, on that first Tuesday, on the courthouse steps, an attorney for the foreclosing lender will auction your home to the highest bidder.

The winning bidder must satisfy the foreclosing lender's mortgage obligation, after which he takes title to your house.  Technically, at the minute of the foreclosure sale, you no longer own your house.  There other types of foreclosure sales like tax sales that give you a right of redemption, but mortgage foreclosure sales do not give you any such rights.

The filing of a bankruptcy serves to stop the foreclosure process at any point during that process.  If your house is scheduled to be sold at 10am on the first Tuesday of the month, and you file your bankruptcy at 9:59am, any foreclosure sale will have no legal effect.

Now, obviously, from the perspective of a bankruptcy lawyer, I would not advise you to wait until the last minute.  If the Bankruptcy Court Clerk's computer system should go down, preventing an electronic filing, you would be out of luck.  Additionally, if the mortgage company goes through with the sale (not knowing about your bankruptcy filing) they may as the Bankruptcy Judge to validate the foreclosure because of your inability to pay, your failure to maintain insurance or for several other reasons.

In addition, under the current bankruptcy law you cannot file without going through a credit counseling course and obtaining a certificate.  Often credit counseling organizations get very busy during the days prior to foreclosure, and there is some case law out there to suggest that you may not obtain your credit counseling the same day as you file your bankruptcy case.

The filing of a bankruptcy stops a foreclosure because your bankruptcy filing creates something called an "automatic stay."  The automatic stay is the most powerful element of any bankruptcy in that it stops most creditor actions.  Be aware, however, that under the new bankruptcy laws, the automatic stay may not apply in refiled cases.  If you have filed before, make sure to tell your lawyer.

If you are facing a mortgage foreclosure, you should be very careful not to fall prey to scam artists who will take your money with false promises of special deals or secrets to stop foreclosure.  A bankruptcy filing is the only absolute method to stop your foreclosure and even a bankruptcy may not help you in every circumstance.   Most bankruptcy lawyers – myself included – will chat with you at no charge on the phone to discuss whether bankruptcy is something for you to consider.  Many of the non-attorney paralegal services out there do not have the skills or knowledge to properly advise you.  You most defintely get what you pay for. 

My advice to anyone facing foreclosure is to seek legal counsel with an experienced and licensed bankruptcy lawyer as soon as you realize that you are in trouble and will not be able to make your mortgage payments.  Second, if bankruptcy is an option, get your credit counseling certificate sooner rather than later.  Third, be very hesitant to trust what anyone tells you about stopping a foreclosure.  Do your own research and ask a lot of questions.

[tags] mortgage foreclosure in georgia, chapter 13, advertising for foreclosure, courthouse steps, legal newspapers in georgia [/tags] 

Property Surrendered in Chapter 7 – Will I Owe if There is a Deficiency?

What happens when you surrender real estate in a bankruptcy?  What does it mean for the trustee to "abandon interest" in the property.  And most importantly, are you – the debtor – responsible for any deficiency balance that may arise after the case is over and the property sold?

This question was posed to me by Christina, one of my recent Chapter 7 clients.  Because of a loss of income, Christina had surrendered back to the mortgage lender a home that she valued at $350,000.   She estimated that the debt owed to the first and second lender totaled $375,000.

Recently, Christina has been receiving letters from the trustee and the second mortgage lender and she is unsure about what this all means.  Most importantly, she is concerned that she may end up with personal liability if the foreclosure sale of the property results in a shortfall.  Because this question raises issues that can apply in a wide range of situations, I decided to answer it on my blog.

First, Christina needs to understand that by surrendering her property, she is relieved of all liability arising from any subsequent sale and shortfall.  By surrendering the property, the debt to the mortgage lenders becomes an unsecured debt which is dischargeable in the Chapter 7.  I should note that Christina's mortgage lenders, like any other creditor in her case, do have the right to file a challenge to her bankruptcy if they suspect fraud or other wrongdoing by Christina. 

I have seen challenges to bankruptcy discharges in cases of mortgage fraud but, absent some unusual bad faith circumstance, it is very unlikely that any credit would file a challenge.  In Christina's case the deadline for filing challenges has long past so she is in the clear.

So, the brief answer to her question – she will not owe any money to the trustee or to either the first or second mortgage lender.

Now, let's take a look at what is going on behind the scenes and why Christina is getting all of those letters.

When Christina filed her Chapter 7, her filing triggered a basic bankruptcy protection called the "automatic stay."  This "stay" means that all creditor actions, including foreclosure, repossession, wage garnishments, etc. must stop immediately.   Christina's bankruptcy filing also triggered the creation of a bankruptcy estate, administered by a Chapter 7 trustee.  The trustee's job is to investigate Christina's financial picture to see if there are any assets to liquidate.

Although Christina filed a Statement of Intention providing for a surrender of the property, the creditor did not get it back because the Chapter 7 trustee had to perform his own investigation to see if there was any equity.  Further, the automatic stay remained in effect while the trustee was performing his investigation.

It is interesting to note that the trustee's investigation has just concluded (August, 2006) although this case was filed in October, 2005.  The reason for the delay – the huge backlog of cases filed prior to the October 17, 2005 change in the bankruptcy law.  The mortgage creditors in this case have been sitting for almost a year without any payments waiting for the trustee to finish his investigation – no wonder they are not very happy!

On August 1, 2006, the trustee filed his Notice of Abandonment.  This means that the trustee has concluded that thereis no equity for the estate.

Now that the trustee has abandoned any claim to equity in the property the mortgage company will move for relief from the bankruptcy stay and will proceed with foreclosure.  Even if the foreclosure results in a deficiency in favor of either the first or second lender, Christina will not owe anything – her obligation is discharged.

[tags] Chapter 7, bankruptcy, mortgage deficiency, motion for relief from stay, automatic stay, Chapter 7 trustee, Notice of Abandonment, surrender of property [/tags] 

Cost of Chapter 13 May Outweigh Its Benefits

Yesterday, I met with a potential client who was facing immediate foreclosure (today) and I encouraged him not to file Chapter 13 to stop the foreclosure.

During the course of our discussion, I learned:

  1. that he had previously filed a pro se Chapter 13 earlier this year that was dismissed for non-payment
  2. because of a reduction in overtime hours, this potential client did not have sufficient income to pay his regular mortgage payment, much less contribute to a plan to cure his arrearage
  3. he had been in his house for less than a year and had no equity (and actually owed more than the property was worth when late fees and penalties were included)
  4. his real estate agent was pushing him to file the 13 because she had a potential buyer lined up
  5. he was very concerned that a foreclosure would cause damage to his credit

I expressed to this gentleman that, in my opinion, Chapter 13 was a waste of his money.  Here is why:

  1. we could not propose a feasible plan since he did not have enough disposable income to pay his regular mortgage, much less contribute to a Chapter 13 plan
  2. his credit was most likely already badly damaged because of his first unsuccessful bankruptcy and his failure to pay his first or second mortgage for almost a year.  A foreclosure would likely not cause significantly more damage
  3. if he was to stop the foreclosure for the purpose of selling the property, how would he close?  The total debt on the property exceeded the sales price – he would walk out of closing owing $10,000 to $20,000
  4. deficiency judgments arising from foreclosures are rare in Georgia – should the mortgage lender pursue him, we could look at filing a Chapter 7 down the road
  5. given the current bias against 2nd filings, it is possible that the lender would foreclose in escrow then immediately petition the Bankruptcy Court for an Order validating the foreclosure
  6. because second cases require extra work – a Motion to Extend the Stay – I have to charge more up front.  In this case, the potential debtor was basically telling me that he had no desire or intention to stay in this Chapter 13 for more than a month.  As such, I would have to charge  $2,500 up front + the filing fee.
  7. the primary practical problem that the potential client faced – he and his family would have to move fairly quickly

I expressed that in my view, it made little sense to spend thousands of dollars for the hope that he could stay in his house for a few weeks to months.  Instead, use his cash reserves to move and find a place to live.  I closed by saying that I would file a Chapter 13 for him if he insisted, but that in my view he was wasting his time and money.

Do you agree with my analysis? 

[tags] Chapter 13, pending foreclosure, Georgia foreclosure, foreclosure Fulton County, stop foreclosure, bankruptcy, bankruptcy analysis, re-filed case, motion to extend stay [/tags]

Weakening of Consumer Bankruptcy Protections Based on Faulty Assumptions

One of the consequences of the new bankruptcy law (BAPCPA law) has to do with erosion of protections offered by bankruptcy in various situations.  For example, the automatic stay provisions, which previously offered a comprehensive, no-questions-asked protection from any creditor action, no longer provides absolute protection in all circumstances.  Under BAPCPA, the automatic stay terminates in 30 days (unless you go to Court to renew it) in certain repeat filing situations and it does not exist at all in the third case filed within a year.

While the policy considerations that underlie this erosion of the automatic stay may be valid, my concerns are (1) when you create complicated exceptions to core concepts, the system loses predictability and public confidence and (2) the stage is set to undermine the entire bankruptcy system with exceptions that swallow the rules, i.e. the “slippery slope” argument.

I find the reduction in bankruptcy protection that applies to repeat filers especially troublesome.  There seems to be an underlying assumption that a debtor who seeks bankruptcy protection  – usually under Chapter 13 – more than once within a year is acting with less than honorable purposes.  In my experience, at least half of the second filers I see have to file a second case because they did not fully understand the process and their obligations thereunder the first time around.

In most jurisdictions, one or two high volume consumer bankruptcy firms account for a majority of the Chapter 7 and Chapter 13 filings.  These high volume firms are a product of the Bankruptcy Courts’ paternalistic attitude towards debtors and consumer bankruptcy counsel.  In most jurisdictions, the Judges set out “no look fee” provisions for Chapter 13 that essentially set the market rate for legal fees in that jurisdiction.  Although the standing court orders that set out these provisions are careful to state that the judges are not setting a fee, the practical effect is, in fact, to set a fee for services.

Because it is hardly practical for a small firm to spend three or four hours of non-billable time to present a fee application, most consumer bankruptcy attorneys accept the no look fee as a flat fee for services.  In the northern district of Georgia, for example, the no-look fee for Chapter 13 is around $4,500.  If a Chapter 13 lasts five years, that amounts to $500 per year to prepare, file and manage a case. Until just a few years ago, that no look fee was $1,500 for five years’ worth of work (that amounted to $300 for five years’ worth of work).

By contrast, in Chapter 11 cases, where the financial stakes may be in the millions of dollars, bankruptcy attorneys may bill at $500 or $600 per hour without any significant judicial interference.

Is it any wonder, therefore, that high volume consumer bankruptcy firms spend so little time with their clients to walk them through the filing and case management process.  Actually face to face attorney time in a high volume firm may amount to 30 minutes or less.  Further, because the business model dictates that costs must be kept down, the high volume firms have no choice but to rely on inexperienced, young lawyers who stay for a year or two then move on.

In simple consumer cases, a paralegal driven model may be fine and I personally have no issue with operating a law firm according to a profitable business model, especially when that model is driven by judicial control of attorney compensation.  In more complex cases, however, it may take a second or third filing for the debtor to find a lawyer who is equipped to deal with that debtor’s complicated problem.

The automatic stay issue discussed above is but one of the many erosions and exceptions to full relief now contained in the Code.  A 2005 article in the ABA Journal entitled “Debts that Will Follow You to the Grave” by Marc S. Stern and Larry B. Feinstein offers an excellent summary of other exceptions to bankruptcy relief.

The prevalence of high volume, limited service bankruptcy mill firms in every large jurisdiction is clearly the product of judicial control of bankruptcy fee payments in Chapter 13 cases.  Yet BAPCPA incorporates a simplistic formula to punish repeat filers, even those who have to seek repeat protection because they ended up in the wrong attorney’s office for their particular case.

Cars With Starter Lockouts and Chapter 13

I note a series of recent posts on the NACBA list serve about used car dealers who are using "starter lockouts" against Chapter 13 debtors to prevent the debtors from driving their cars.  As I understand the technology, a starter lockout is a device installed in the electrical system of a car that can be activated by satellite.

In a non-bankruptcy situation, the starter lockout is a way for a used car dealer to disable a vehicle if the buyer misses a payment or bounces a check.  In the cases discussed on this list serve, it appears that the lockout was activated prior to the bankruptcy filing and the car dealers are refusing to cancel the starter lockout despite the bankruptcy filing.

The consensus on the list serve is that a used car dealer who refuses to cancel a starter lockout is in violation of the automatic stay.  The practical effect of the dealer's action is equivalent to a dealer who refuses to return a repossessed vehicle after a filing.

If you are a debtor or a debtor's lawyer who is dealing with a starter lockout, then you most likely have a cause of action for damages for the car dealer's violation of the automatic stay.

In the Nothern District of Georgia, where I practice I have always had success forcing a used car dealer to return a vehicle seized prior to the bankruptcy filing, although I usually do have to make a case that the debtor will be able to make the case work. 

[tags] starter lockout, automatic stay, automatic stay violation, adversary proceeding [/tags] 

Trends in Mortgage Foreclosures

One component of the new bankruptcy law that gets little popular attention has to do with the limitations the new law places on re-filed Chapter 13 cases.  The Bankruptcy Code now provides that in a second case filed within one year of a first filing, the automatic stay terminates in 30 days unless the debtor files a Motion to Extend Stay.  For a third filing within a year, the automatic stay does not go into existence at all.

The intent of this new Code section is to stop so called “serial filers” – people who file and re-file to stop mortgage lenders from foreclosing.

Under the old law, by the way, bankruptcy judges could and frequently did exercise their power to dismiss a case “with prejudice” (pursuant to Section 109(g) of the Code) thereby barring a debtor from refiling for 180 days.

The problem from my perspective as a consumer debtor lawyer arises when a debtor has to file a  second or even third case because of circumstances beyond his control.  For example, in the Northern District of Georgia, where I practice, problems with Chapter 13 plan funding are the primary reason why Chapter 13 cases fail.  Often the funding is short because the employer fails to start the payroll deduction on time.  In our district every debtor who is employed must be subject to an automatic payroll deduction.

An initial Chapter 13 case may fail because the debtor’s lawyer was inexperienced or got in over his head.  Chapter 13 now requires numerous document disclosures and fast response to trustee objections.  Many times over the past twenty years, I have received a frantic call from a debtor whose case had been filed by a lawyer who “dabbled” in bankruptcy and who failed to respond properly to the trustee objections.  And there are also those cases that debtors filed pro se and  two or three months into the case decided (usually on advice from their trustee) to get a lawyer. Under the old law trustees and judges frequently recommended re-filing. Now, that option is much less appealing or practical.

A case may fail because a debtor has not yet wrapped his mind around the idea that his lifestyle and spending habits must change.

When a debtor wants or needs to refile, he will find that it has become much more difficult and expensive to find a  lawyer to take his case.  In my office, I will take a second filing within a year sometimes, but the up front cost will be higher that it would be for an initial filer. Why?  I know that at a minimum I will be making an additional court appearance to extend the stay and because the trustees tend to be much more demanding in a refiled case.

As a rule I will not take third filings and many of the more experienced, capable bankruptcy lawyers I know will not take third filings either.  The risk of getting stuck in litigation and hours of unpaid time loom too large.  I routinely refer third cases to one of the high volume filers.

No doubt the debtors themselves are partially to blame.  In my office I advise my clients orally, in memo form and by letter and email that the debtor is responsible for making all trustee payments until the payroll deduction kicks in and that all mortgage payments must be paid directly as on-going mortgage payments are not part of the plan.  And every month or so I have a debtor insist that “nobody told me” to make my mortgage payments or trustee payments.

However, without minimizing the debtor’s responsibility, I can see how a debtor would be confused by the process.  Bankruptcy is confusing and a bit terrifying.  Debtors are almost always very stressed and overwhelmed by months of financial pressure.  And, often, a main reason that a debtor is in bankruptcy relates to that debtor’s poor financial management skills and practical budget know-how.  This lack of know how, in my view, extends to the debtor’s decision making in choosing a bankruptcy lawyer and evaluating his bankruptcy and non-bankruptcy options.

Often the choice of a bankruptcy lawyer is made at the last minute.  Cash strapped debtors often choose a lawyer based on up front price.  Usually a law firm offers a low up front cost because (a) it is a volume filer or (b) it is a new or inexperienced lawyer trying to get cases to learn the practice area.  In both these scenarios, despite the good intentions of the lawyer, there is an increased risk that the first filing will not work.

The bottom line, in my view – there are many reasons why an initial filing may not work and more often than not the dismissal is for a reason other than a serial filing mindset by the debtor.

Now I am reading that teaser rates and adjustable rates are rising, especially in the subprime lending market.  In the Bankruptcy Litigation blog, Illinois bankruptcy attorney Steve Jakubowski cites a Wall Street Journal article as stating that subprime loan originations have increased from $150 billion in 2000 to $650 billion in 2005.  Further, about 25% of all mortgage debt in the United States is coming up for interest rate resets in 2006 and 2007.  Many of these resets will result in substantially higher monthly mortgage payments.

This all means that there are going to be a lot of first time filers looking at Chapter 13 to stop a foreclosure.  How many of those debtors will be affected by the new restrictions on refiling Chapter 13?


Stay Violation – When to Go For Sanctions

Orlando bankruptcy lawyer Jonathan Alper recently wrote in his Florida bankruptcy blog about a case he observed in the Orlando bankruptcy court in which a debtor’s lawyer failed to win stay violation sanctions for his client because of his desire to extend professional courtesy to the creditor’s lawyer.  The debtor’s attorney dropped his demand for sanctions against the lawyer but continued to pursue a contempt recovery against the actual creditor.  The judge ruled that the attorney was the party who did not honor the automatic stay, not the company, and by dismissing the lawyer from the Complaint for Sanctions, the debtor had no basis for recovery.

This reminds me of a case that my colleague Bernie Stittleburg and I pursued a couple of years ago against a law firm that represents numerous homeowner’s associations in the Atlanta area.  In our case, as in the one Jonathan Alper discusses, the creditor, through its law firm, filed a  post-bankruptcy lawsuit against the debtor even though the debt had been discharged in my client’s bankruptcy.  At the State Court hearing (we had a transcript), the creditor’s lawyer argued to the State Court judge that the bankruptcy stay did not apply to his client because his client did not get proper notice.  In fact, we had given the creditor notice at an address specifically identified by the creditor in loan documents.  In addition, there is case law that suggests that actual notice may be sufficient in some circumstances.  The bottom line in this case is that the creditor’s lawyer was absolutely incorrect in his statements to the State Court judge.

By the time the client came back to us, his wages had been garnished and he had suffered some very real finanical hardship.

Bernie and I decided to file a Contempt lawsuit against the creditors as well as the law firm that pursued the judgment against our client.  I remember engaging in several very uncomfortable telephone conversations with the managing partner of this firm who was reluctant to admit to wrongdoing and even more reluctant to make a settlement offer.

In the Orlando case, I suspect that the debtor’s lawyer was trying to preserve a relationship – as debtor’s lawyers we see and negotiate with the same creditor lawyers weekly.  In consumer bankruptcy, negotiated settlements on motions for relief and Chapter 13 confirmation objections are very common.  Busy creditor lawyers, who are paid hourly by their clients, are usually in court all day anyway so it would not burden them to refuse to negotiate every case, thereby forcing the debtor’s lawyer to spend hours of non-billable time waiting for a calendar call.

In our case, Bernie and I eventually worked out a settlement with the creditor law firm.  But our relationship with the creditor firm was damaged.  What happens the next time I am trying to work out a deal with that firm is very much an open question.

Jonathan Alper’s point that the lawyer needs to think about his client’s interest is correct.  However, for the debtor’s lawyer, thinking about the big picture, pursuing damages against a creditor’s lawyer who he will see again and again, is a difficult call.

$150 Automatic Stay Violation Results in $6,000 damages award

I read a very interesting case summary in the March 30, 2006 edition of the Consumer Bankruptcy News.  It described the Lisenby case from the Middle District of Alabama.

In this case, after the Lisenbys filed bankruptcy and after the Mrs. Lisenby advised the debt collector about the bankruptcy filing, the collection agency drafted $150 out of the Lisenby’s checking account.  This bank draft caused numerous bounced checks and bounced check charges.

The Lisenbys filed a Complaint for Violation of the Automatic Stay in Bankruptcy Court.  The collection agency failed to file a response.  Judge Dwight Williams held a trial to determine damages and found the collection agency liable for the bounced check charges, lost wages, $1,000 in punitive damages for wilful violation (the defendant never returned the $150) $2,644 in attorney’s fees and $1,000 for violation of the Fair Debt Collection Procedures Act – total damages were over $6,000.00

This reminds me of an automatic stay violation case I brought here in the Northern District of Georgia where a “buy here, pay here” car dealer repossessed my client’s car after the bankruptcy filing and did not return it until I had filed suit.  The judge in my case awarded almost $4,500 in damages even though the debtor had never made any payments on the car and even though the contract was a lease, not a purchase.

The big picture here – bankruptcy judges take the automatic stay very seriously.  Sometimes creditors, especially small companies who are not familiar with bankruptcy, do not recognize how important the automatic stay is treated.

Generally, if the creditor acts quickly to fix the problem, the courts will generally not award punitive damages.  But woe is the creditor who holds on to a car or who refuses to fix a problem despite notice.
So, if you have filed bankruptcy and a creditor takes action against you, you may very well have a significant claim for damages.

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