Archive for the ‘Automatic Stay’ Category

The Automatic Stay, a.k.a., You Can Answer Your Phone Again

Wednesday, June 8th, 2011

One of the main reasons that people file bankruptcy is something called the “automatic stay.” The automatic stay is called that because that is what it is: (1) it goes into effect automatically upon the filing of a bankruptcy petition and (2) it operates as a “stay,” or stops, efforts to collect against a debtor. The automatic stay is quite different from most other areas of law. In most areas of law, if you want a stay or an injunction, you have to make a significant showing as to why the stay is necessary. Not in bankruptcy. In bankruptcy, you just file the case and the stay goes into effect.

So what happens if a creditor violates the automatic stay? Let’s say a creditor disregards the automatic stay and continues a lawsuit against a debtor after the bankruptcy is filed. What penalties are there? A willful disregard of the automatic stay can result in the creditor being liable for actual damages, attorneys fees, and in appropriate cases, punitive damages. So, creditors have good reason to be very cautious about violating the automatic stay.

Unfortunately, they are not always as cautious as they should be. When that happens, it is important to have an attorney that is willing to sue the creditor for violation of the automatic stay. It is also important to remember that automatic stay violations have to be proven by evidence. So, if you think a creditor is violating the automatic stay, you should start keeping track of each detail regarding that violation. This would include (1) writing down details regarding each phone contact, (2) keeping any written communication, including the envelope used to send the communication, and (3) documenting any damages that occur as a result of the violation.

Posted in Automatic Stay, Bankruptcy, Chapter 13, Chapter 7, Fair Debt Collection | Comments Off

9th Circuit BAP Tells Wells Fargo No More Freezing Bank Accounts

Wednesday, July 7th, 2010

The Ninth Circuit Bankruptcy Appellate Panel castigated Wells Fargo for a practice that has been the bane of many debtors and their counsel. Wells Fargo has a procedure whereby it automatically freezes any debtor’s bank account where the total bank balances at the bank exceed $5,000. The bank’s stated purpose is to make sure those funds are available to the Chapter 7 Trustee. The case name is In re Mwangi, No. 09-1408 (9th Cir. BAP June 30, 2010).

The Ninth Circuit BAP, however, has found the practice violates the automatic stay because it is an act to control property of the estate. Furthermore, the BAP found that debtors who have been injured by such an action may seek damages from Wells Fargo for such a violation. 11 U.S.C. Sec. 362(a)(3) prohibits “any act . . . to exercise control over property of the estate.” The court noted that Sec. 362(a)(3) proscribes “the mere knowing retention of estate property.” The court went on to find that

Wells Fargo asserts it did not exercise control over property of the estate. We disagree. Wells Fargo could have paid the account funds to the trustee; it did not. Wells Fargo could have released the account funds claimed exempt to the Appellants when demand was made; it did not. Wells Fargo could have sought direction from the bankruptcy court, by way of a motion for relief from stay or otherwise, regarding the account funds; it did not. Instead, it chose to hold the funds until a demand was made for payment that it alone deemed appropriate. If that is not “exercising control over” the funds, we don’t know what is.

The court went on to note that the automatic stay and turnover provisions are self-executing and that Wells Fargo turned the self-executing nature of those provisions on their head by requiring the debtors to take affirmative action to get access to their funds.

It will be interesting to see if Wells Fargo appeals this case.

Posted in Automatic Stay, Bankruptcy, Bankruptcy Cases, Bankruptcy Exemptions, Chapter 7 | Comments Off

Fool me once, fool me twice . . . but not three times

Saturday, September 16th, 2006

Bankruptcy Judge Whitney Rimel (of Fresno) issue an interesting opinion (In re Gay, No. 06-10472) recently on the issue of the circumstances under which the automatic stay can be reinstated. By way of background, the automatic stay goes into effect immediately upon the filing of a bankruptcy case. It prevents creditors from taking any action to collect a debt.

The new bankruptcy law (BAPCPA) made some changes to the automatic stay, including a provision that if you filed one bankruptcy within the year preceding the current filing and that filing was dismissed for any one of several reasons, the automatic stay expires after 30 days and another provision that if you filed had two bankruptcy cases dismissed within the last year, there is no automatic stay upon the filing. It can be reinstated upon a showing by clear and convincing evidence that the case was filed in good faith.

In In re Gay, there had been two previous dismissals. In considering whether the new case was filed in good faith, Judge Rimel looked primarily to the issue of whether there had been a change in circumstances. The debtors presented evidence that their income had stabilized since the previous filings. However, the court found this unpersuasive and determined that the debtors did not rebut by clear and convincing evidence the presumption that the third filing was not in good faith. Consequently, the stay was not reinstated and the debtors probably lost their home.

This should give anyone pause who is considering filing a bankruptcy case. If the case is dismissed, you may lose the automatic stay if you have to file again. This is especially a problem for debtors who represent themselves in bankruptcy. I had that issue with a client recently. He filed in pro per (without an attorney), did not comply with all of the requirements, and his case was dismissed. He immediately refiled and then hired me to get the automatic stay reinstated (which we did). He could have avoided a lot of problems by hiring an attorney to help him with the first case.

Posted in Automatic Stay, Bankruptcy Cases | Comments Off