California Court Discusses Sanctions for Violating the Automatic Stay in Bankruptcy Cases

One of the many benefits of filing for bankruptcy is that an automatic stay is imposed that prevents parties from filing a lawsuit against the debtor. If a party ignores the stay and files a civil action against the debtor, the debtor may be able to recover sanctions. The courts will not impose sanctions unless the debtor can demonstrate actual harm, however, as shown in a recent California opinion issued in a bankruptcy case. If you are interested in learning more about the benefits of bankruptcy, it is prudent to meet with a trusted California bankruptcy lawyer to discuss your options.

The History of the Case

It is reported that the debtor filed a petition for Chapter 13 bankruptcy. Pursuant to the bankruptcy code, an automatic stay was entered after he filed his petition. Despite the stay, however, the defendant creditors continued to pursue payments from the debtor. He filed a motion for sanctions, asking the bankruptcy court to penalize the defendants for their violation of the automatic stay. The bankruptcy court denied his motion and his subsequent motion to vacate the order denying his motion. He appealed, and the bankruptcy appellate panel affirmed the bankruptcy court’s ruling. He then appealed to the United States Court of Appeals for the Ninth Circuit.

Sanctions for Violating Bankruptcy Stays

The Court of Appeals was not persuaded by the debtor’s reasoning and affirmed the lower court’s rulings. In doing so, it explained that the standard of review it applied to the bankruptcy appellate court’s ruling was the same as the standard the bankruptcy appellate court applied to the bankruptcy court’s ruling: abuse of discretion.

The Court of Appeals ultimately found that the bankruptcy court did not abuse its discretion in denying the defendant’s motion because he failed to demonstrate that he suffered any harm because of the alleged violation of the stay. As proof of an actual injury is necessary to impose sanctions based on a violation of an automatic bankruptcy stay, this was fatal to the debtor’s motion.

The Court of Appeals elaborated that the debtor neglected to provide it with the transcript of the hearing held in the bankruptcy court in which the court set forth its reasons for denying the defendant’s motion to vacate. As such, the Court of Appeals was unable to find that the bankruptcy court abused its discretion with regard to that issue. Based on the foregoing, it affirmed the lower court rulings.

Speak to an Experienced California Bankruptcy Attorney

Bankruptcy offers debtors numerous protections, including a reprieve from civil litigation, and parties that violate automatic stays may be subject to sanction. If you have overwhelming debts and are interested in filing for bankruptcy, it is in your best interest to speak to an attorney to determine whether you may be eligible for debt relief.  Matthew D. Roy is an experienced California bankruptcy lawyer with the skills and resources needed to help you seek the best legal outcome available under the facts of your case. You can reach Mr. Roy through the form online or by calling (916) 361-6028 to set up a conference.