When a debtor becomes the subject of a bankruptcy petition, an automatic stay – a statutory injunction requiring creditors not to continue any further collection action (including medical collections) against the debtor – immediately arises under the bankruptcy code. Actions taken in violation of the automatic stay generally are voidable, regardless of whether the person violating the automatic stay knew of the bankruptcy filing.
In appropriate circumstances, the debtor may bring a lawsuit against the creditor seeking damages for a willful violation of the automatic stay. Such a case is filed as a separate lawsuit in the bankruptcy and is given its own separate case number.
To establish a willful violation of the automatic stay, an individual debtor must prove by a preponderance of the evidence that:
- The bankruptcy petition was filed.
- The debtor is an individual.
- The creditor received notice of the bankruptcy petition.
- The creditor’s actions were a “willful” violation of the stay.
- The debtor suffered an injury as a result of the automatic stay violation.
If the debtor can establish all these elements, the debtor can recover both actual damages, including costs and attorneys’ fees, and in appropriate circumstances punitive damages.
The bankruptcy code does not define what constitutes a “willful” violation or “injury.” However, certain guidelines and themes have emerged from court decisions regarding whether or not a creditor has willfully violated the automatic stay.
First, sanctions are not generally imposed for “technical” or “accidental” violations. The critical question is whether the creditor acted intentionally with actual knowledge of the bankruptcy proceeding.
With regard to the injury requirement, emotional distress generally is not compensable without a showing of financial loss because emotional distress claims are relatively easy to manufacture. Rather, the debtor must prove an actual injury with reasonable certainty, not by mere speculation, guess or conjecture.
While medical evidence is not necessarily a prerequisite, the damages must have a sufficient factual foundation and the debtor must present some corroborating evidence.
Article written by Matthew R. Strzynski of Krieg DeVault LLP, a law firm headquartered in Indianapolis with offices in Carmel, Noblesville and Schererville, Ind., as well as Chicago, Ill. and Atlanta, Ga. The statements in this article should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only and you are urged to consult your own lawyer for any specific legal question.