Creditors Must Respect Your Bankruptcy Case

A creditor who disposes of your property after receiving notice that you have filed for bankruptcy has violated the automatic stay and you are entitled to damages

The automatic stay is a core precept of bankruptcy. It prevents creditors from pursuing action against the debtor while bankruptcy is in process. The Bankruptcy Court stands between the debtor and his or her creditors, to shield the debtor and ensure creditors are paid according to the rules of the court, not because of high pressure tactics. The automatic stay is so important that a creditor who willfully violates it will be subject to punitive damages. In re Carlton, __ B.R. __ (E.D.N.C. 2013), a recent bankruptcy case out of North Carolina, provides a good example.

See also: Five laws every consumer should know 

Repossessed Cars and Bankruptcy

Bonnie, a resident of North Carolina, purchased a Nissan Murano in 2005. In early 2009, she refinanced the outstanding $28,000 with Wells Fargo for the next five years at an interest rate close to 10%. She made several late payments and missed several payments and by the end of September, she was in default. Wells Fargo repossessed her car. In re Carlton, __ B.R. __ (E.D.N.C. 2013). The bank told Bonnie that to get her car back she would have to make a payment of $2,500; about $1500 in delinquent payments and a repossession fee of almost $1000. Id

Bonnie wrote the check, and a Wells Fargo representative told her the bank would release her car. However, after repossessing the car, Wells Fargo had transferred it to an auction company called Adesa. So, in late October, Bonnie traveled the four hours to the auction site only to find that her license plate had been removed and turned over to the North Carolina Division of Motor Vehicles (NCDMV). To add insult to injury, Adesa attempted to charge her a storage fee of more than $300. Bonnie didn’t want to pay a charge she felt was unfair and she certainly didn’t want to drive for four hours on the highway with no license plates. She left her car at the auction site.

Bonnie contacted Wells Fargo and told them she needed her license plate and registration back from the NCDMV and that she refused to pay the fine to Adesa. She also made another regular car payment to the bank. Wells Fargo attempted to retrieve Bonnie’s license plate and registration, but the NCDMV could only release those to the owner of the car – Bonnie. After first asking Bonnie to pay the entire storage fee to Adesa, Wells Fargo finally offered to split the cost with her. She refused and filed a complaint with the Consumer Protection Division of the North Carolina Attorney General’s Office at the end of October 2009.

At the end of December, Bonnie received a notification that Wells Fargo planned to sell her property at some time after January 4, 2010. Bonnie sought the help of an attorney. He told her that the only way to prevent the sale of her vehicle was to file for bankruptcy. The automatic stay would prevent Wells Fargo from selling her vehicle. On January 6, Bonnie filed for chapter 13 bankruptcy; it was an accelerated filing so that she could notify Wells Fargo before it sold the car.

Wells Fargo Sells the Car Despite Receiving Notice of the Bankruptcy

The same day Bonnie filed for bankruptcy, her attorney notified Wells Fargo. When her attorney contacted the bank two weeks later, an employee informed him that the bank had sold Bonnie’s car on January 14, eight days after the petition was filed.

Bonnie moved for sanctions against Wells Fargo for violating the automatic stay. Under 11 U.S.C.A. § 362(k), “an individual injured by any willful violation of the automatic stay… may recover punitive damages.” Bonnie requested a total of almost $70,000 in damages for emotional distress, a replacement vehicle, lost income due to her inability to travel to work, and attorney fees, among other costs.

When a debtor whose vehicle has been repossessed files for bankruptcy, the creditor must either return the vehicle or move for relief from the automatic stay. Wells Fargo refused to return Bonnie’s car and then sold it after being notified of her bankruptcy.  Even merely refusing to return the car is generally considered a violation of the automatic stay, but Wells Fargo went a step further and actually sold it, despite knowing the stay was in place. Wells Fargo argued that it had made a mistake in selling Bonnie’s car due to a filing error and hadn’t violated the stay on purpose, so it shouldn’t be liable. Carlton, __ B.R. at 4.

The court determined that for purposes of violating the automatic stay, willfulness refers to “the intent to commit the act which violates the automatic stay.” Id. citing Lofton v. Carolina Fin. LLC (In re Lofton), 385 B.R. 133, 140 (Bankr. E.D.N.C. 2008). In other words, Wells Fargo was guilty of violating the automatic stay for intentionally selling Bonnie’s car. She received more than $12,000 in damages for the value of her car and almost $10,000 for her attorney’s fees. The court did not compensate her for emotional distress (because of lack of proof) or rental cars (because she should have just bought another car and mitigated her damages), but it did compensate her for the value of her car and the cost of litigating the issue.

Creditors Must Respect the Automatic Stay

The automatic stay is inviolable. It exists to help debtors keep the property that’s most crucial while they reorganize their finances. It gives them room to breathe. The automatic stay is one of the most important aspects of bankruptcy and the court takes it seriously. Know your rights. If you file for bankruptcy, you have the automatic stay on your side.