Responding to Automatic Stay Violations in Bankruptcy Petitions


The process of filing bankruptcy petitions is permitted in any chapter of the Bankruptcy Code

A bankruptcy petition in any chapter of the Bankruptcy Code creates the “automatic stay,” which prevents creditors from proceeding further against the debtor or the assets of the debtor in the course of bankruptcy. Professional bankruptcy lawyers know that a violation of the automatic stay can be an issue that is serious and therefore they are required to notify their clients of the importance of complying with or executing the. However there are occasions when violation of the stay occurs accidentally, even though all reasonable and reasonable procedures are taken. Businesses that are large and sophisticated with multiple departments, addresses , and employees, can still be able to contact or bill the debtor after bankruptcy filing. Attorneys representing debtors from afar, may appear to be a great opportunity to pursue the creditor accountable for breach of stay in the hope (or of wishing) of getting the best settlement. But is it right to the attorney of the debtor to first try to address the issue via non-judicial means and what are the responsibilities by Mississippi attorney as per federal bankruptcy rule 9011 (“Rule 9011”) prior to filing a lawsuit? Does any home crime give the attorney for a debtor to claim the payment of a substantial sum?

A recent decision of 28 pages of the District of South Carolina Bankruptcy Court in the case of In Re James Defeo vs. Winyah Surgical Specialists, PA, Adv. Pro. Issue 21-801-JW (September 27th, 2021) The case where the Court gave an amount of $10,000 to the lawyer of the debtor for violating Rule 9011 provides advice on these issues.

Then in Defoo it was revealed that the borrower declared bankruptcy on the 2nd October in 2020. The defendant-creditor deposited to the creditor an amount of $910.00 on the 17th day of November, 2020. The lawyer for the debtor approached the defendant and informed him of the bankruptcy. On February 2 2021, the defendant sent an additional bill to the creditor the identical quantity. The defendant admitted that she had been informed of the bankruptcy before the time they issued their second invoice However, she claimed the invoice was sent through her personal computer and was not correct. After identifying and rectifying the mistake , the defendant made no attempt to collect the creditors. The lawyer for the debtor did not try to contact the creditor until they had received the second invoice. The debtor, in turn, and the lender was sued by February 15th of 2021. The lawsuit sought to recover the sum of $50,000 in punitive damages. In addition, it claimed to the fact that the defendant had intentionally and purposely committed a violation of the Remain by engaging in the method of “excessively aggressive, insincere , deceitful, manipulative , inflicting the oppression, abuse, and unlawful collecting”. The 8th of April, 8, 2021 Defendant filed (but did not file) the Motion for Sanctions (“Sanctions Motion”) against the Debtors Counsel on the basis it was alleged that Counsel for Debtor violated Rule 9011 by (i ) in not conducting an inquiry or reviewing all of the Complaint claims in a way that reasonable in the context and (ii) when he filed the Complaint with the intention to negotiate an agreement. Counsel representing the debtor did not agree to amend or retract his Complaint in response to the Sanctions Motion, and after the end of the 21-day safe harbour in May of 2021,, Debtor’s Counsel made his motion to impose sanctions. It was on May 3rd 2021. The defendant filed an Motion for sanctions before the Court.

The Court looked into the actions of the attorney representing the debtor, and found that the attorney’s conduct was not in compliance with Rule 9011

. The first concern was that the attorney did not perform a thorough examination of the legal and factual foundation of the lawsuit, as an example, the mandatory regulations 9011(b)(2). Particularly, the Court concluded that the complaint included a range of allegations concerning the defendant’s particular mental state and intent in addition to the factual assertion of the fact that defendant “chose to violate the law in a reckless and unintentional manner, and in flagrant contempt, the basis for bankruptcy”. However the attorney for the debtor was not able to look into or inquire about the motives of the defendant because the sole basis was an invoice for $910 that was provided from the lender. The debtor’s lawyer did not question witnesses, and the documents indicated that the debtor’s lawyer did not find any other communications from an individual defendant such as threats in letters, emails text messages, phone calls, or visits to lawsuits or personal accounts. The Court further stated that the invoices sent by debtors (i) written in a reasonable manner and did not contain any hint of the defendant’s intentions to “annoy the debtor, harass to hurt or intimidate or harass or threaten the person who is owed” and (ii) they did not, alone indicate that the defendant had been involved in engage in “overly overly aggressive, unsincere and deceitful manipulative tactics that led to violence, abuse and illegal collection”.

The Court found that the complaint violated Rule 9011(b)(1) since it was filed for the wrong motive of seeking substantial damages as well as an agreement. The Court concluded that the high prominence of the request for $50,000 in the front page of the petition, as along with the exaggerated description of defendant’s conductthat did not convey the severity of the violation of the stay, were evidence that the petition was filed to harass and intimidate the defendant. in a standard.

In the final ruling, the court determined that the attorney representing the debtor was punished with an amount of $10,000 in accordance with law 9011(c). It was the Court decided that the fine of $10,000 was appropriate because the complaint was filled with assertions without any basis in fact and demanded damages which did not correspond to the suspension’s violations. The defendant was put at risk and resulted to the expense of attorney fees in defending the matter, and seek an appeal to a punishment. The Court further stated that financial sanctions were necessary to deter further conduct by the attorney representing the debtor, who was prone to an inclination to bring identical suits. Attorneys had filed more than 100 lawsuits that were adversarial based on the premise that he had committed an intentional breach of automatic stays over the period, and many were based on the sending of simple letters of invoice or collection.

Defoo case, although it’s not an ideal case, it is a good example of caution for lawyers for debtors. Although the person who was involved in Defoo technically did not comply with an automatic stay on execution, the lender made the right and timely moves to correct the problem, however, he did not communicate to the debtor until it was resolved. In contrast the arguments, demands and arguments provided by the lawyer for his client in the complaint were not substantiated in actual fact and were not proportional to the violation of the stay. The order of the judge in Defoo is not just a good reminder of an excellent guideline (and it also reminds) of the various ways the lawyers of the debtor are required to comply with Rule 9011 when conducting an investigation or response to violations to the the stay, but also serves as well as a clear reminder that violations of stay do not allow lawyers to pursue an unlimited right to pursue a massive settlement.

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