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

By Jonathan on April 4, 2006

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.

Failure to pay full filing fee in prior case leads to dismissal of new case

By Jonathan on April 4, 2006

This afternoon, I received a call from a potential client with an unusual problem. He advised me that he filed a Chapter 13 on December 29, 2005, but that the mortgage company went ahead with foreclosure on January 2, 2006 and now he was facing an eviction. How could this be?

A quick look at the Court docket explained what had happened. The debtor had filed a previous Chapter 13 case back in June, 2005 and had elected to pay his filing fee in installments. The case ended up being dismissed, but the debtor never paid the remaining balance due for the filing fee.

When the debtor filed his second case in December, 2005, he again requested permission to pay the filing fee in installments. After the case was filed and a case number issued, the computer system in the clerk’s office flagged the case as one with unpaid filing fees from a previous case.

The Judge’s office then sent a form letter to the debtor advising him that he had 10 days to pay the outstanding balance due on the previous case or the current (December, 2005) case would be dismissed and the automatic stay annulled ab initio. For those of you who do not speak Latin, this means that the case and the automatic stay would be treated as if it never existed at all, dating back to the date of filing.

Unfortunately the debtor, who was proceeding without a lawyer, did not understand or recognize the seriousness of the judge’s order and he failed to pay the outstanding filing fee. After the 10 day period elapsed, the judge issued and order dismissing the case and annulling the stay ab initio.

Shortly after the dismissal order was issued, the bank initiated eviction proceedings. Unfortunately, I had to advise the debtor that there was nothing I could do for him. I recommended that the debtor call my good frieind Schuyler Elliott to see if there was any wrongful foreclosure angle here. Schuyler has developed a Georgia wrongful foreclosure practice here in the Atlanta area. Schuyler felt that there might be some issues with the foreclosure but the debtor’s failure to preserve his bankruptcy protection would make any wrongful foreclosure action time-consuming and expensive.
The lessons you can take from this story are as follows:

1. It is not wise to enter into bankruptcy without the help of an experienced lawyer. This is especially true under the new bankruptcy law and this is especially true if you have previously filed a case. One of the purposes of the new law is to discourage repeat filings and there are many traps that can bite you when you file a second case.

2. You need to read any documents issued by the Clerk of Court or by a bankruptcy judge. Here, the judge issued an order where the most important phrase was in Latin. Is there a constitutional problem there? Maybe. But this debtor has neither the money nor the time to pursue a challenge.

When is a family of 3 not a family of 3?

By Jonathan on March 29, 2006

Recently I appeared with a client at a 341 hearing and the trustee raised an interesting point about family size calculations for purposes of the median income/means test calculation.

As you may know, when you first come to my office, you have to provide me income data for the past 6 months so I can run a median income test. If your average monthly income during that 6 month period is less than the average monthly income for a similarly sized family in Georgia, we are free to file Chapter 7 or a less than 5 year Chapter 13.

As you might expect, the average income for a family of 3 is higher than the average income for a family of 2. So it is easier for a 3 person family to fall below the median income limit (meaning you have more choices).

In my case, my client filed individually. He is married and has one teenage child from a prior marriage. He pays child support.

When I prepared this case, I showed that he had a family size of 3 (debtor, spouse and teenage child). The trustee objected saying that because the child does not live with him, the actual family size is 2.

This raises a number of interesting questions. What if a debtor and his ex-wife share custody equally? What if the child lives at college? What if the child is spending her junior year of high school abroad? What if the ex-spouse has legal custody but the child actually lives some or all of the time with the debtor.

There are no answers yet for these questions but it is easy to see how these types of issues will spawn a lot of appellate litigation.

New “debtor questionaire” form being used by trustees in Chapter 13 341 hearings

By Jonathan on March 29, 2006

Recently, I attended a Section 341 meeting of creditors hearing in Gainesville and the trustee asked the debtor and me to review and sign a 17 question checklist prior to the call of the hearing. The questions on the checklist verify that the debtor has received all necessary disclosures and understands the process. Not every trustee uses a checklist but it is worth asking your lawyer for a copy prior to your hearing if one will be used in your case.

Ultimately this type of checklist should save time, and, in my view, it represents the reality that this new bankruptcy law has added additional administrative burdens on all parties – the debtors, the trustees and the Courts – that add little value and contribute little to the goal of preventing abusive filings.

Soldier in Iraq wants to convert from 13 to 7

By Jonathan on March 24, 2006

My old friend Phil, a lawyer who is currently serving our country in Iraq emailed me with a question. A soldier there wants to convert from a Chapter 13 to a Chapter 7 – what is involved?

Here are the things I would address to answer this question. First of all, I think that the jurisdiction for filing a conversion is the same jurisdiction where the original Chapter 13 was filed. I am not aware of any rules regarding the jurisdiction of soldiers out of the country, but I could be mistaken about this.

Second, be aware that there is a “Soldiers and Sailors” Act which can provide protection for military personnel, i.e. limitations on foreclosures, repossessions and evictions. I suspect that Phil may have a better understanding about these rules than I do. The question, therefore – does the Soldiers & Sailors Act provide sufficient protection such that a conversion is not necessary and/or what protection would be offered if the solder converts to a Ch. 7.
Third, with regard to a conversion, it is a matter of right (unless there is a court order to the contrary). A Chapter 13 debtor can convert to Chapter 7. When you convert, you need to file new schedules, and show that your budget no longer has disposable income.

I believe that if your case was filed pre-October 17, 2005, the “old rules” for Chapter 7 apply and if it was filed after October 17, 2005, you need to go thru the median income/means test analysis.

The biggest practical issue I see with conversions has to do with secured debt. In a Chapter 13, the rights and payments to secured creditors (cars, furniture, jewelry, real estate) are modified. For example, if your car note calls for $350 per month, and you file a Ch. 13, the car lender may only get $200 per month from the trustee. While you are in a confirmed Ch. 13, the car lender has to accept these reduced payments. Upon conversion, however, the car lender will revert back to the contract and you may very well be several months delinquent.

Since reaffirmation of a secured debt is voluntary in a Chapter 7, the lender may not want to enter into a reaffirmation agreement.

Similarly, a Chapter 13 can provide that co-debtors are protected by paying co-signed debts in full under the Ch. 13 plan. Upon conversion, the co-debtors may be exposed because the bankruptcy stay will come to an end when the case is closed.

The bottom line is that the soldier needs to understand the repercussions of conversion. Assuming he had a lawyer to file his Ch. 13, he needs to communicate with that lawyer about the conversion. With tools like e-mail and Skype this communication may be feasible.

That is my take on Phil’s question. And, with much appreciation to Phil, his soldier client and all of our military personnel serving in Iraq, this post is closed.

Check out the “Debt Podcast”

By Jonathan on March 9, 2006

Several weeks ago, I came across New York bankruptcy lawyer Jay Fleischman’s website and his podcast site. For those who do not know, a podcast is like a radio show on the Internet. You can either listen on site or you can download the audio files to your IPod or other mp3 player.

Jay’s weekly show is about consumer bankruptcy issues and he obviously puts a lot of time and effort into his podcast. Each show is about 10 to 15 minutes long. If you are researching bankruptcy law (which is what you should be doing prior to filing), I highly recommend that you include the DebtPodcast audio program to your surfing. Past shows are archived on the site and it is fast becoming an essential consumer bankruptcy resource on the Internet.
DebtPodcast show link.