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Los Angeles Court Affirms Penalties for Willful Violation of Automatic Stay in Chapter 13 Bankruptcy Case

By Randy from Newbury Park, California, USA (Hidden Valley  Uploaded by PDTillman) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia CommonsA U.S. district court in Los Angeles affirmed a bankruptcy court’s order finding that a judgment creditor willfully violated the automatic stay in a Chapter 13 case. In re Bayley, No. 2:14-cv-07799, order (C.D. Cal., Jan. 14, 2015). The automatic stay takes effect the moment a bankruptcy petition is filed. 11 U.S.C. § 362(a). Violations of the automatic stay may be subject to penalties by the court, with greater penalties for violations found to be “willful.” The present case demonstrates how a court could find that a party’s violation was willful despite a claimed mistake of law.

The creditor at issue in this decision obtained a judgment against the debtor in a Ventura County court in August 2011, in an amount approaching $13,000. A lien on real property owned by the debtor in Thousand Oaks secured the judgment. The court in Ventura County issued a writ of execution about two years later, and in January 2014, the Los Angeles County Sheriff’s Department (LASD) served the debtor’s bank with a writ of garnishment. The LASD levied $4,000 from the account that February.

About two weeks after the levy, the debtor filed a Chapter 13 bankruptcy petition. The LASD was still in possession of the $4,000 at the time. The debtor included the $4,000 in her Schedule B list of personal property, and she claimed it as exempt in Schedule C under California’s “wild card” exemption, Cal. Code Civ. P. § 703.140. She then filed a motion to avoid the real property lien. The creditor did not object to the debtor’s claimed exemption or her motion.

The bankruptcy court granted the debtor’s motion, which rendered the lien unenforceable. The debtor requested that the LASD return the $4,000 to her. The LASD said it could only do so if the creditor released the funds, but the creditor stated that only the trustee had the authority to authorize the release. The debtor eventually filed a motion alleging intentional violation of the automatic stay by the creditor.

After a hearing, the bankruptcy court ruled that the creditor had willfully violated the automatic stay. It ordered the creditor to pay over $4,500 in damages and directed the LASD to release the funds. The creditor appealed to the district court but did not pay the damages award, “apparently believ[ing] that doing so would moot its appeal.” Bayley, order at 4. The bankruptcy court ordered it to post a $100,000 bond.

The district court affirmed the bankruptcy court’s ruling, finding that the creditor willfully violated the automatic stay. To prove that a violation of the automatic stay is “willful,” a debtor must prove that the party knew about the stay and that they “intentionally act[ed] in violation of it.” Bayley at 6, citing Eskanos & Adler v. Leetien, 309 F.3d 1210, 1215 (9th Cir. 2002). The debtor must only prove, however, that the party intended to perform the act that violated the stay. They do not have to prove that the party “specifically intended to violate the stay.” Bayley at 6, citing In re Pinkstaff, 974 F.2d 113, 115 (9th Cir. 1992). The district court held that Congress intended “that a debtor need not take steps to secure the benefit of the automatic stay,” and therefore the creditor “had an affirmative duty” to authorize the release of the funds. Bayley at 13. It was not persuaded by any mistake of law by the creditor.

Bankruptcy attorney Devin Sawdayi has guided individuals and families in the Los Angeles area through Chapter 7 and Chapter 13 personal bankruptcy cases since 1997. To schedule a free and confidential consultation, contact us today online or at (310) 475-9399.

More Blog Posts:

Bankruptcy Court Considers Whether to Lift Automatic Stay for Foreclosure-Related Proceedings, Los Angeles Bankruptcy Lawyer Blawg, May 11, 2015

Violation of Automatic Stay Can Result in Emotional Distress and Punitive Damages, According to Ninth Circuit Ruling, Los Angeles Bankruptcy Lawyer Blawg, April 12, 2015

Debtors Allowed to Sue Loan Servicer for Charging Unapproved Fees During Chapter 13 Bankruptcy, Los Angeles Bankruptcy Lawyer Blawg, December 23, 2014

Photo credit: By Randy from Newbury Park, California, USA (Hidden Valley, Uploaded by PDTillman) [CC BY 2.0], via Wikimedia Commons.