Can Bankruptcy Stop Eviction?

This case comes out of our own Eastern District of New York.  Sometimes, people file for bankruptcy on an emergency basis to ward off a pending foreclosure or eviction.  If you can avoid a last-minute filing, it helps so that necessary parties are provided notice.  Although the filing of bankruptcy triggers the automatic stay (in most cases), and creditors must respect the automatic stay, can bankruptcy stop eviction?

In this particular case, the debtor had owned a building in Brooklyn that was used as a church.  He fell behind on mortgage payments, and so the bank commenced a foreclosure action.  The bank sold the loan to another entity, which took over the foreclosure action.  Judgment of foreclosure was entered in favor of this new creditor, and a sale was scheduled for August 15, 2013 at 3pm.  The debtor filed for chapter 13 bankruptcy on August 15, 2013 at 2:09pm.  The building, however, was sold at the foreclosure auction on August 15, 2013 at 2:30pm.

On September 3, 2013, the attorney for the creditor acknowledged in an email that the prior owner of the property and current occupant had filed for bankruptcy.  On September 4, 2013, the city marshal served the debtor with a Notice of Eviction.  On September 16, 2013, the marshal, along with the creditor, showed up to the premises to enforce the eviction.  During the eviction, the debtor’s wife and the creditor got into an altercation in which the debtor’s wife alleges that she was assaulted, resulting in a hospital visit.  Further, the debtor alleged that the creditor took a whole bunch of property from the premises that was never returned.  During the course of the bankruptcy action, the debtor asked the Court for an Order finding that the creditor was in violation of the automatic stay.

In its analysis, the Court asked itself three questions: (1) whether the creditor violated that automatic stay and, if so, was the violation willful?; (2) whether the debtor can demonstrate actual damages?; and (3) whether the debtor is entitled to punitive damages for the behavior of the creditor?

With respect to the first question, the Court found that the creditor did willfully violate the automatic stay.  The debtor filed bankruptcy and, notwithstanding, the creditor proceeded with the eviction of the debtor and his possessions from the premises.  With respect to the second question, the Court found that the debtor did sustain actual damages from the eviction, but the debtor was unable to establish the value of such losses, so no money award was issued.  With respect to the third question, and mostly because of the altercation between the debtor’s wife and the creditor, the Court awarded $50,000.00 in punitive damages to the debtor.

This case is a good reminder of a few things.  First, the protection of the automatic stay is not to be disregarded.  If you are a creditor, and a debtor files for bankruptcy, your DUTY is to stop enforcement of any and all proceedings and actions WHATSOEVER.  Second, it reveals the challenges presented for all parties by an emergency filing.  Finally, it reveals the teeth with which judges may enforce the Bankruptcy Code.  If you are a debtor or creditor dealing with a (potential) bankruptcy, do not hesitate to contact LORK.

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