Anyone who has filed or is thinking about filing for bankruptcy knows that filing for bankruptcy does two things: (1) generally, you get the protection of the automatic stay; and (2) upon grant of the discharge order, debts are discharged. There have been court decisions, however, that make it difficult to enforce those provisions – not so much in theory, but in practice. These court decisions put a strain on the time and resources of (consumer) debtor attorneys, and marginalize the work that debtor attorneys do. Unfortunately, some times bad facts (and bad practice) result in bad law.
This case comes from the bankruptcy court for the Western District of New York. In the case, the debtor, who had filed for chapter 7 bankruptcy, owned a vehicle. The value of the vehicle was about $38,000, and the loan balance was about $64,000.00. In the bankruptcy papers, the debtor declared his intention to surrender the vehicle. After the filing of the case, the vehicle lender and the debtor (as well as debtor’s son) had several phone calls where it appears that the debtor agreed to surrender the vehicle. At no point, however, did the debtor disclose to the creditor that he had filed for bankruptcy, nor did the creditor, at any point, ask the debtor whether he had filed for bankruptcy (although the creditor was listed on the bankruptcy papers).
The vehicle was repossessed in May 2016. Without contacting the creditor to discuss, the debtor’s attorney filed a motion seeking sanctions and attorney’s fees based on an alleged violation of the discharge injunction by the creditor. The court ultimately denied the motion seeking sanctions and attorneys fees because, as the court noted, the debtor did not suffer any actual damages. Further, the court reasoned that, while in some cases, an award of attorneys fees may be reasonable and necessary, they should not be awarded in a case that was brought just to obtain attorneys fees. In this case, the motion wasn’t seeking any return of the vehicle, nor alleged any damages, so the motion was seeking attorneys fees just to seek attorneys fees. Moreover, the court advised that debtor counsel should take steps to mitigate damages whenever and wherever possible, including contacting creditors to reverse any damage caused. In re Crowder, 16-20440-PRW (Bankr. W. D. N. Y., June 2016)
I appreciate the court cautioning debtor counsel to bring a motion for sanctions or attorneys fees only when absolutely necessary. A big problem exists, however, in demanding that debtors suffer actual, pecuniary damages. Its very rare that a debtor will suffer actual damages as a result of violation of the automatic stay or discharge injunction (outside of continued garnishment or some repossession of property). Many of the violations that debtors present including continued collection calls and letters, or filing of lawsuits for debts that were discharged and noticed in the bankruptcy case. Creditors often will continue this behavior until a motion for sanctions is presented (and the defense is one of “it was a printing and mailing error that wasn’t supposed to go out”). Debtors will often express frustration and discontent with their attorney (because they thought the bankruptcy case was going to stop the collection and enforcement efforts). The courts have to be more understanding of what actually goes on in practice, the strain put on debtor attorneys, as well as putting some teeth behind the statute. If the only case that a court will hear is one where a creditor practically causes physical harm to a debtor, then what’s the purpose of an automatic stay or discharge injunction.