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Judgment Creditor Violated Automatic Stay by Continuing Wage Garnishment, Court Finds

muresan113 on stock.xchngA California bankruptcy court found that a creditor in a Chapter 7 case violated the automatic stay by continuing to garnish one of the debtor’s wages after receiving notice of the bankruptcy petition. In re: Herron, No. 10-14105-PB7, order (Bankr. S.D. Cal., Jan. 6, 2012). Upon the filing of a bankruptcy petition, an automatic stay immediately goes into effect with regard to most civil legal actions by or against the debtor. A violation of the stay, such as collection action without the bankruptcy court’s permission, may entitle the debtor to damages and costs. 11 U.S.C. § 362. In the present case, the court found that the debtors had not established any basis for an award of damages, but that they could recover costs and attorney’s fees.

The debtors, a married couple, filed for Chapter 7 bankruptcy in August 2010. They identified a San Diego attorney as a creditor for a judgment against the wife. The wife had unsuccessfully sued her employer, a school district, for harassment. The school district obtained a judgment against her for its costs in 2009, and later obtained an order for wage garnishment. The San Diego County Office of Education handled payroll for the school district, and it began garnishing her wages on June 30, 2010 by deducting $716 from her paycheck and sending that amount to the San Diego County Sheriff’s Department. It deducted the amount of $658.05 from her paycheck on July 30.

The automatic stay took effect when the debtors filed their petition on August 8. When the wife received her pay statement on August 31, she saw that the county had deducted an additional $711. The creditor admitted receiving the notice of the bankruptcy filing on August 16, and notified the Sheriff’s Department that it should issue a refund check to the debtors. The debtors received a refund shortly thereafter.

In November 2010, the debtors filed a motion seeking to hold the creditor in contempt for violating the automatic stay. They requested disgorgement of garnished funds, punitive damages, $2,000 in damages for emotional distress, and $4,500 for costs and attorney’s fees.

The court held that the creditor clearly violated the automatic stay by continuing garnishment after receiving notice of the bankruptcy petition. It cited a Ninth Circuit precedent holding that the bankruptcy code unambiguously requires creditors to cease all collection actions once a petition is filed. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2002). While the violation of the automatic stay was clear to the court, the court held that the debtors had not established any actual injury or damages resulting from the violation. It noted that the creditor acted quickly, once the debtors’ counsel brought the issue to his attention, to stop the garnishment and refund the amount garnished post-petition. The court awarded no damages, but allowed the debtors to apply for costs and attorney’s fees.

Since 1997, bankruptcy attorney Devin Sawdayi has handled Chapter 7 and Chapter 13 cases in the Los Angeles area. We represent clients who find themselves without enough income to adequately service their debts, helping them create plans that enable them to pay debts on a manageable schedule, sell assets to pay off debts, and obtain a final discharge of some remaining debts. Please contact us today online or at (310) 475-9399 to schedule a free and confidential consultation to see how we may help you.

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