So what did the lawyer do? He did the right thing - he filed a motion for sanctions against Digital for violating the automatic stay.

Digital did not respond to the debtor’s motion and did not appear at the hearing. Digital disregarded the phone calls from counsel for the debtor, ignored the automatic stay, and neither responded to the debtor’s motion nor attended the hearing to offer an explanation of its behavior.

The court realized that Digital’s actions have caused the debtor considerable distress, and the debtor incurred attorney’s fees to bring the motion.

The debtor filed a lawsuit against Chase seeking damages and legal fees, and Chase failed to answer or appear. The debtor’s attorney presented a request for compensation for $810. In reducing the award to $400, the court noted that the debtor’s lawyer had not attempted to contact Chase prior to filing the case. In so doing, the court noted that the preference is for

debtors and their attorneys to contact the offending creditor by mail or phone before commencing an action for damages. In re Risner, 317 B.R. 830 (Bankr.D.Idaho 2004). Attorney fees awards may be reduced or denied entirely where the debtor fails to make any reasonable effort to request that the creditor withdraw its offending pleading or cease its offending communication before escalating the matter into a “federal case” by immediately initiating an action for damages. Id. There may, of course, be exceptional circumstances where a creditor by the nature of its conduct or the substance of its communication engenders a reasonable belief that a cease and desist request would be futile.

In the case at bar, the DEBTOR did not call or write CHASE before commencing this adversary proceeding. When CHASE received the Complaint and Summons, it took no further action to prosecute its claim and promptly dismissed the state court complaint. This mitigating response indicates that CHASE likely would have dismissed its complaint based upon a communication from the DEBTOR or the DEBTOR’S attorney directly referencing the pending bankruptcy case and CHASE’S violation of the automatic stay.

This is not to say that the stay violation should be entirely excused. CHASE is a large, sophisticated creditor with a wealth of bankruptcy experience. It can be assumed that CHASE has systems in place to make sure that the automatic stay is honored whenever a borrower files for bankruptcy relief. For reasons not a part of the record, those systems failed here and a willful violation of the stay occurred.

The message could not have been clearer, but apparently it was not heard. In fact, Navy Federal Credit Union contacted Ms. Price 10 times by phone, twice by mail, and once by coming to her home.

What happened next is a study in good lawyering. Ms. Price’s lawyer, Robert Grossbart of Baltimore, MD, filed the case of Price v. Navy Federal Credit Union, in the U.S. Bankruptcy Court for the District of Maryland. The case asserted that Navy Federal Credit Union violated Ms. Price’s rights under the U.S. Bankruptcy Code, which prohibits contact by creditors after the filing of a bankruptcy case.

On January 9, 2008, Bankruptcy Judge Wendelin Lipp order Navy Federal Credit Union to not only pay Ms. Price’s legal fees of $3,464.50 but also ordered this creditor to pay punitive damages in the amount of $10,000 for the blatant disregard of the U.S. Bankruptcy Code.

A copy of the Order can be found here.

The case arose when M&M Auto Outlet-Wyoming, Inc. repossessed the debtor’s pickup truck after a Chapter 13 bankruptcy petition had been filed.

The court held that in order to demonstrate a violation of an automatic stay of 11 U.S.C. 362(k)(1) the debtor bears the burden of establishing, by a preponderance of the evidence, that the creditor knew of the automatic stay and intended the actions that constituted the violation; no specific intent is required.

In other words, all that need be proven is that the creditor knew of the bankruptcy and acted in the face of it. The debtor need not prove that there was an intent to violate the automatic stay, merely that there was an intent to take the act. Period. End of story.

Another case of a misplaced court notice, or stonewalling?

You guessed it, folks - you’re being stonewalled. The problem, however, is that most bankruptcy courts don’t know it, either. They take sides with the creditor or debt collector without any further inquiry.

They don’t know about Banko. Or Banko’s new cousin, Notify Solutions.

Banko, offered by our friends as Lexis-Nexis, consolidates and updates bankruptcy cases daily from all fifty states, the District of Columbia, and Puerto Rico. Banko automatically supplies comprehensive, timely bankruptcy data to subscribers. That’s right, Banko does this all automatically.

Banko’s national bankruptcy database contains complete information on all bankruptcy filings, discharges, dismissals and conversions in the United States. Banko® gathers complete bankruptcy information from all Federal Bankruptcy Districts daily and then pushes that information to the debt collector into a single bankruptcy database. Each bankruptcy filed is tracked on a case-by-case basis in order to collect all filings, 341 dates, discharges, dismissals and conversions. And the information always contains the debtor’s name, address and social security number.

This week Banko got competition from First Data Corp., an electronic transaction processor serving over 1,900 cards issuers and 5 million merchants. The Notify Solutions product compiles public records from 7,000 federal, county and local courthouses nationwide in addition Guam, Puerto Rico, and the U.S. Virgin Islands. The bankruptcy database is updated daily and allows users to remove the account from their collections efforts and stop all mailings and other attempts to communicate with the account.

So next time a creditor takes action post-filing (or worse, post-discharge) don’t take their word for it that they made an innocent mistake - chances are, they knew about the bankruptcy filing before the trustee was assigned.

And when there is a willful and intentional violation of the automatic stay or discharge order, there is a cause of action for damages and legal fees.