Available Damages for Willful Violation of Automatic Stay
In 2015, in the case of In re Schwartz-Tallard, the Ninth Circuit Court of Appeals held that § 362(k) “authorizes an award of attorney’s fees incurred in prosecuting an action for damages” in cases where creditors violate the automatic stay.
Under 11 U.S.C. § 362(a), among other things, the bankruptcy petition “operates as a stay, applicable to all entities, of the commencement or continuation…of a judicial, administrative, or other action or proceeding against the debtor …; the enforcement … of a judgment …; any act to obtain possession of property of the estate …; [and] any act to create, perfect, or enforce any lien….” Congress intended that the automatic stay have broad protections while any exemptions to the automatic stay are to be read and enforced narrowly.
In bankruptcy cases, the intention of the automatic stay is two fold: 1) it provides debtors with a “breathing spell” from creditor harassment, and 2) it protects creditor interests by preventing “dismemberment” of assets before Chapter 7 liquidation or formulation of a Chapter 13 repayment plan.
The automatic stay imposes an affirmative duty of compliance on non-debtor parties and creditors have an affirmative duty to repair/remedy the automatic stay violation. The sole requirements of a willful violation are that 1) the non-debtor must know of the automatic stay, and 2) that same non-debtor’s actions in violation of the stay were intentional.
Under § 362(k)(1), “an individual injured by any willful violation of a stay … shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” In Sternberg v. Johnston, the Court held that § 362(k) allows debtors to recover fees incurred to end the stay violation, not the fees incurred to pursue an action for damages. Thus, the Sternberg decision limited recoverable attorneys’ fees and costs in these actions.
In Schwartz-Tallard, the Ninth Circuit explicitly overruled its prior ruling in Sternberg by reversing its original determination that Congress meant to “split” costs and fees into recoverable and non-recoverable categories. Since the class of persons authorized to sue in this case are individual debtors in a bankruptcy, they are likely inherently without the resources to hire private counsel to resolve the matter. Additionally, the robust remedies afforded debtors through the statute serve to deter creditors from violating the automatic stay.
KEYWORDS: Automatic Stay, Willful Violation of Automatic Stay, Stay Violation, 11 U.S.C. Section 362, Action for Damages, Sanctions, Recoverable Attorney Fees, Breathing Spell, Creditor Harassment, Unfair Collection Behavior, In re Schwartz-Tallard, Sternberg v. Johnston, Ninth Circuit Court of Appeals