Bankruptcy Judge Allows Debtor To Recover Attorney’s Fees After Creditor Violated Automatic Stay

Under the United States bankruptcy laws, once a person enters bankruptcy, all of his or her debts are “stayed” during the pendency of the bankruptcy proceeding. This means that creditors are not permitted to try and collect on amounts owed during the pendency of a bankruptcy proceeding. It is also in the bankruptcy laws that when a creditor violates this automatic stay, it can be held liable for damages to the debtor.

payday-advance-post-dated-checks-cashed-1144228-mIn a recent case on appeal from the United States District Court for the Western District of Washington, the court had occasion to determine if the same law that allowed for the debtor to collect punitive damages against the creditor also allowed for the collection of attorney’s fees that were accrued while litigating the violation of the automatic stay.

The Facts of the Case

In the recent case of In re Snowden, a nurse took out a payday loan for $575 to help her and her daughter make ends meet. Shortly afterward, she notified the payday loan company that she was considering filing for bankruptcy. They informed her that she would need to call them every day until the bankruptcy was settled, or they would call her references and tell them that she was behind and couldn’t pay her debts. To avoid embarrassment, she called them every day.

Eventually, the company began to call her at the hospital where she works. The woman testified that she was extremely upset each time they called because they would announce her name over the hospital loudspeaker, and each time she was afraid something had happened to her daughter. Eventually, despite their promises to the contrary, the payday loan company cashed a check that the woman left as collateral for the payday loan. This overdrew her account and caused her to accrue a substantial amount of bank fees.

The woman sought punitive damages and damages for emotional distress, as well as the cost of attorneys’ fees. The bankruptcy court awarded her all of these. The payday loan company appealed, arguing that it was improper for the judge to award the attorneys’ fees as a part of the verdict, as well as that the punitive and emotional distress damages were an abuse of the court’s discretion.

However, on appeal, the court agreed with the lower court and affirmed the damages amounts. In addition, it asked the lower court to recalculate the award of attorneys’ fees, increasing the amount because of the subsequent proceeding that was required. The court explained that it was the legislature’s intention to prevent creditors from seeking to recover money owed to them during a bankruptcy proceeding.

Are You Thinking About Applying for Bankruptcy?

If you are currently thinking about applying for bankruptcy, you should speak with a dedicated Kentucky bankruptcy law attorney to discuss your situation. Bankruptcy helps tens of thousands of people each year get a new start and get on their way to financial freedom. To learn more about the bankruptcy laws in Kentucky, and to speak with a dedicated attorney about your financial situation, call 866-366-3328 today to set up a free consultation.

More Blog Posts:

Bouncing Back After Bankruptcy in Kentucky, Kentucky Bankruptcy Lawyers Blog, published July 16, 2014.

Bouncing Back After Bankruptcy: Rebuilding Your Credit Score, Kentucky Bankruptcy Lawyers Blog, published August 24, 2014.

Contact Information