A decision was recently issued from the Chief Judge of the Bankruptcy Court for the Eastern District of New York. The case presented the question of whether monetary sanctions are appropriate when a debtor in bankruptcy is served with judicial pleadings. The answer is a resounding yes.
In this case, the debtor filed for chapter 7 bankruptcy in March 2014. The debtor, in their petition and schedules, listed a debt to an individual. A notice of the bankruptcy filing was sent by the Court to all creditors, including this one individual creditor. During a hearing, as the debtor and their attorney were waiting for the case to be called, the individual creditor served a summons and complaint upon the debtor – IN THE COURTHOUSE! Subsequently, the debtor’s attorney mailed a letter to this individual creditor advising that her actions were in violation of the automatic stay provided by the Bankruptcy Code, and that if the action was not discontinued, the debtor may seek an Order in the Bankruptcy Court. The letter was returned as unclaimed. Subsequently, the debtor’s attorney had to appear in Queens Civil Court for two appearances. After these appearances, the debtor’s attorney filed a motion seeking damages for violation of the automatic stay.
This individual creditor obtained an attorney who appeared in Court to respond to the motion, but subsequently FAILED to respond to the motion, as per a Court Order. Since no opposition was entered, the Court granted the motion for damages, which was all the debtor’s attorney’s fees, and invited the debtor’s attorney to file supplements to calculate the damages. The debtor’s attorney’s records amounted to $5,600.00. After the debtor’s attorney filed these documents, the individual creditor’s attorney appeared in Court to object to the amount being claimed. The Court dismissed all of the opposition, and entered an award for $5,600.00 payable to the debtor’s attorney.
This case reinforces the teeth with which the Bankruptcy Code’s automatic stay may bite. When a debtor files for bankruptcy, ALL collection and enforcement proceedings MUST cease. Further, creditors have a duty to TERMINATE pending collection and enforcement activities. In this case, this individual creditor blatantly disregarded the notices sent by the Bankruptcy Court and the debtor’s attorney. Further, the failure of the individual creditor and/or their attorney to abide by directions of the Court made this a very easy case to enter an award for sanctions against the creditor.
If you are a creditor and receive notice that someone who you have a claim against has filed for bankruptcy, contact an experienced and competent bankruptcy attorney. Failure to understand the Bankruptcy Code, as well as Federal Court procedure, could result in a comparable monetary award against you. If you would like to discuss bankruptcy, as a debtor or a creditor, contact LORK.
In re Leiba, 14-41062-CEC (Bankr. E. D. N. Y., Apr 27, 2015)