Contempt for Violation of the Bankruptcy Stay
Most creditors know that the filing of a bankruptcy action invokes the ‘automatic stay,’ a Federal injunction against collection efforts. The entry of a bankruptcy discharge makes that injunction permanent. Despite this, a creditor will occasionally violate the automatic stay or discharge injunction and try to collect a debt included in the bankruptcy. When that happens the Debtor may seek sanctions against the creditor, including damages, out of pocket losses, punitive damages and attorneys fees.
Quite often a letter to the creditor advising of the perils of violating the automatic stay will be sufficient to stop the creditor action. If the creditor persists it is important to move quickly to bring the offending action to the attention of the Bankruptcy Court. A Motion for Contempt and Sanctions may be appropriate.
In a recent case an insurance company levied on the personal property of one of our clients after we obtained a discharge in bankruptcy. The discharge included the insurance company debt. Six months later the insurance company showed up at our client’s home along with two Federal Marshals, a moving truck and movers and two appraisers. The company had been advised that the client had a special needs daughter particularly susceptible to emotional damage. It took over one hour of phone calls to stop the levy. At trial the Bankruptcy Judge found that the insurance company levied on our client with “the intent to cause as much psychological damage as possible.” The case settled for $275,000.00.
In another recent case a creditor continued to send threatening and defamatory text messages to our client after we filed his bankruptcy case. We were successful in stopping this action and the creditor was ordered to pay approximately $32,000.00 in attorneys fees.
The automatic stay also applies to the IRS. We have filed numerous contempt motions against the IRS. Improper efforts to collect income taxes can also be stopped during a bankruptcy. Some collection efforts arising out of a divorce case are also subject to the automatic stay.
We have filed motions to stop continued debiting of a clients bank account or credit card, to stop phone calls and letters, threatening emails and other forms of collection and harassment. State Court actions that may be legitimate under Florida law may be inappropriate following a bankruptcy if the purpose, in part, is to harass the Debtor. You should seek legal assistance if this happens to you. We are also available to co-counsel on cases of contempt for violation of the automatic stay or the discharge injunction.