Can Debtors Recover Damages for Emotional Distress for Violations of the Automatic Stay?

May 10, 2018 Posted by kingcade

One of the benefits of filing for bankruptcy involves the automatic stay, a measure that goes into effect as soon as the bankruptcy case is filed. This automatic stay puts a halt to any collections proceedings or efforts, giving the filer reprieve from the continually calls and communications from creditors seeking to receive payment on their debts. By law, creditors are bound to abide by the automatic stay, but many creditors do not always abide by the stay. When that happens, the question arises as to what kind of damages the filer is entitled to if a creditor violates the stay.

Actual and Punitive Damages

Under the Bankruptcy code, if an individual undergoing a bankruptcy is injured by a “willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and – in appropriate circumstances – may recover punitive damages.” 11 U.S.C. § 362(k)(1).  It is up to the court to determine whether “actual damages” includes damages for emotional distress, and this normally comes down to the question of whether the violation was accidental or intentional.

Was the Violation of the Automatic Stay Deliberate?

In some situations, a creditor can violate the automatic stay accidentally or unintentionally. Other times, the violation can be deliberate , and in complete disregard for the law. The stay is automatic, and many creditors, if they have a registered contact with the court, will find this out as soon as the stay is instituted. However, if the creditor is a smaller company, they may not find out quite so quickly, which means if the creditor continues to contact the debtor, that initial contact could be an accidental violation of the stay.

To seek damages for the violation, the filer needs to show the court that the creditor violated the automatic stay willfully. The creditor must have known that the contact or communication was prohibited but did so in spite of that knowledge. If the filer expressly gave someone employed by the creditor the information regarding the bankruptcy, then he or she has the evidence needed to show that the violation was willful.

Court Treatment of Violations of the Automatic Stay and Emotional Distress

Four circuits, including the first, third, ninth and 11th circuits, have affirmed that emotional distress damages are available if a creditor violated the stay. In recent cases, the courts have reviewed the legislative history and found evidence that the emotional consequences of the debtor were considered when creating the automatic stay. The history showed that Congress meant to protect not only the financial interests of those filing for bankruptcy, but the non-filing ones, as well. However, the fifth and seventh circuits have not been as strong in their rulings when it comes to emotional distress damages. These courts have been skeptical in the ability the bankruptcy court has to award emotional distress damages in a bankruptcy matter.

Filing a Claim

If a filer believes that he or she has been victim to a willful violation of the automatic stay, it is recommended that the individual consult a bankruptcy attorney before proceeding. The attorney can help determine what the best course of action is, given the circumstances of the case. A motion may be appropriate to request the judge to issue an “order to show cause,” requiring the creditor to provide the reason why the violation occurred. If damages were particularly significant, a lawsuit for these damages may be necessary and justified.

If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources:

https://www.thebalance.com/your-rights-when-a-creditor-violates-the-automatic-stay-316196

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