The recent case of In re Sullivan, 2007 WL 987328 (Bankr.N.D.N.Y. 2007) follows a line of decisions from the US Bankruptcy Court for the Northern District of New York that add teeth to the proposition that debtors should be compensated for the damages that arise from creditors systemic, continuing and egregious violations of the automatic stay provisions of the Bankruptcy Code.

The case involved a motion for violations of the automatic stay provisions of 11 U.S.C. § 362 against Washington Mutual Bank, F.A. and its agent, the Law Offices of Shapiro & DiCaro, LLP. Shapiro & DiCaro filed a proof of claim on behalf of Washington Mutual which set out an outstanding mortgage balance in the amount of $2,169.22, and subsequently billed Washington Mutual $500.00 in attorney fees. No attorney fees were included in the proof of claim.

After confirmation the Debtor contacted Washington Mutual to obtain a payoff amount for the mortgage which encumbered his personal residence, and which was within several hundred dollars of being paid in full after nearly 30 years of payments. The Debtor received in response a December 6, 2004 payoff letter from Shapiro (”Payoff Letter”) containing the mortgage’s $175.53 principal balance, and a line item for “Bankruptcy Attorney Fees” of $500.00.
During the course of closing, Shario further refused to release the abstract of title for the loan without payment of the $500 fees.

The court held that charging these unapproved legal fees by the mortgage company was a violation of the automatic stay, and that the debtor was entitled to damages. This is a huge win for those of us who litigate mortgage servicer abuses in New York, as it verifies the position that we’ve all been taking - that legal fees left undisclosed on a proof of claim simply cannot be recovered from the debtor in the absence of court approval.

According to debtor’s counsel Theodore Araujo:

It is particularly important to note that the only defendant in this case was a law firm. In the past the cost of enforcing the stay provisions has fallen on counsel for the debtors. It is common for Bankruptcy Judge’s to belittle motions that seek to enforce the automatic stay that are brought by debtors. It is not uncommon for the Bankruptcy Courts to state to debtors counsel that the debtor should have taken actions to prevent the abuse of the stay after the fact rather then assert their rights under the statute.

This is the only circumstance in my knowledge where the costs of enforcing a remedial statute in Federal Law that creates a substantive right on behalf of a protected party, is borne by the party that was to be protected. Even so called “de-minimus” violations of the stay are egregious in the opinion of most debtors when they have gone through the tortuous route of filing Bankruptcy to gain a fresh start.

The creditors have decided that the continued practice of violating the automatic stay provisions are cheaper and more profitable then complying with the law. It is time that more Courts start to realize that these are real cases that cause traumatic injury.

Mr. Araujo a member of the National Association of Consumer Bankruptcy Attorneys, is an attorney with the Bodow Law Firm, PLLC in Syracuse.

In the case of In re Tay-Kwamya, — B.R. —-, 2007 WL 1175890 (Bkrtcy.S.D.N.Y.,2007) the debtor filed a Chapter 7 case but did not provide “all payment advices.” The Chapter 7 Trustee filed a “Request for Dismissal of Case Pursuant to 11 U.S.C. § 521(i)(2) and General Order M-315″ and, in response, the Debtor filed an “Affidavit in Opposition” conceding a failure to provide two “payment advices.” The debtor did, however, provide pay stubs for the six-week period prior to her bankruptcy filing. The Debtor stated that the gross pay of the missing pay stubs was $712.94 and that this amount could be verified by reviewing the pay stubs that were submitted to the Chapter 7 Trustee. She also stated that she could not locate the two missing pay stubs, and that she “may have great difficulty” in obtaining duplicate copies from her former employer.

The Court scheduled a hearing on the Request for Dismissal. Though the Chapter 7 Trustee indicated at the hearing that he intended to withdraw the Request for Dismissal, the Court determined that it would be more appropriate to consider the issues presented in the Request for Dismissal and address the outstanding issue of what constitutes sufficient “other evidence” in the case of missing payment advices.

The Court took into consideration the totality of the Debtor’s circumstances and quality of the other evidence provided by the Debtor to the Chapter 7 Trustee, finding that the Debtor met the statutory requirements and denied the Chapter 7 Trustee’s request to dismiss the case.

The court relied on In re Luders, 356 B.R. 671 (Bankr.W.D.Va.2006) inasmuch as that case provided an initial starting point for the Court’s consideration of what constitutes “other evidence” sufficient for the requirements of Section 521(a)(1)(B)(iv). In Luders, one payment advice was missing for Mr. Luders and two for Mrs. Luders. However, the pay stubs that were submitted to the Chapter 13 trustee contained year-to-date information, which included their total earnings over the sixty-day prepetition period. Like the Debtor in the instant case, neither Mr. or Mrs. Luders requested an extension of time under 11 U.S.C. § 521(i)(3) in which to file their payment advices. Accordingly, the Chapter 13 trustee requested an automatic dismissal of the debtors’ case for failure to file documentation. The court in Luders concluded that the year-to-date information contained on the timely submitted pay stubs constituted “other evidence of payment” in satisfaction of § 521(a)(1)(B)(iv) and declined to dismiss the case. 356 B.R. at 674.

In the recently-decided case of Zelotes v. Adams, — B.R. —-, 2007 WL 638331 (D.Conn. 2007) a bankruptcy attorney brought a cause of action challenging the constitutionality of the Code provision added by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) prohibiting “debt relief agencies” from ever advising their clients to incur additional debt in contemplation of bankruptcy even when it might be lawful and prudent to do so. The District Court denied the motion to of the U.S. Trustee to dismiss. The United States Trustee then moved for reconsideration.

The court held that (1) the provision of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that prohibited “debt relief agencies” from ever advising their clients to incur additional debt in contemplation of bankruptcy even when it might be lawful and prudent to do so, such as when refinancing would reduce rate of interest that clients paid, was unconstitutionally overbroad as applied to bankruptcy attorneys; but that (2) the injunction would issue against enforcement of this provision only against plaintiff attorney.

The case of In re Hildreth — B.R. —-, 2007 WL 458066 (Bkrtcy.M.D.Ala. 2007) makes clear that a depository institution was properly served by first class mail addressed to an attorney, though the attorney in question had never entered formal appearance in bankruptcy case on bank’s behalf, where attorney appeared numerous times on bank’s behalf and had filed motion and submitted a proposed order as bank’s legal representative.

Federal Rule of Bankruptcy Procedure 7004(h) requires that service on an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act) in a contested matter or adversary proceeding shall be made by certified mail addressed to an officer of the institution unless the institution has appeared by its attorney, in which case the attorney shall be served by first class mail; the court orders otherwise after service upon the institution by certified mail of notice of an application to permit service on the institution by first class mail sent to an officer of the institution designated by the institution; or the institution has waived in writing its entitlement to service by certified mail by designating an officer to receive service.

So the question in Hildreth was really what constitutes “unless the institution has appeared by its attorney.” The court, using the cases of Rubin v. Pringle (In re Focus Media, Inc.), 387 F.3d 1077, 1084 (9th Cir.2004) and Ms. Interpret v. Rawe (In re Ms. Interpret), 222 B.R. 409, 416 (Bankr.S.D.N.Y.1998) held that an attorney does not have to enter a formal appearance in a case in order to be the party’s attorney for purposes of service of process. The attorney for the bank in this case had appeared numerous times in this bankruptcy case, filing a motion and submitting a proposed order on behalf of the bank.

In response, the attorney claimed that she received thousands of emails and that she cannot possibly “monitor each pleading filed in each and every case in which [she] has filed a motion for a creditor.” Citing McMillian v. District of Columbia, 233 F.R.D. 179, 181 (D.D.C.2005) as well as In re Mayhew, 223 B.R. 849, 856 (D.R.I.1998), the court tossed aside this argument and held that it is the duty of the creditor’s attorney to monitor the court’s docket to keep himself apprised of the developments in the case.

So the lesson here is that unbundling is not permitted by either party If a creditor has retained counsel for one aspect of a bankruptcy case, that attorney cannot come to the court with an argument that is has merely “unbundled” it’s services. Most debtor attorneys face the same challenge, with many courts holding that a lawyer in the base case is automatically the lawyer in any adversary proceeding commenced against the debtor during the court of the case.

What’s good for the goose is good for the gander.

In the case of In re Pinti, 2007 WL 744031 (Bkrtcy.S.D.N.Y.,2007), the Debtor filed a voluntary petition for Chapter 13 bankruptcy. Schedule B of Debtor’s petition listed a 2004 Ford F250 valued at $10,400. The Vehicle was purchased by the Debtor pursuant to a retail installment contract on July 26, 2004. In Schedule D, the Debtor listed Ford Motor Credit Company with a claim of $28,000 secured by the Vehicle.

The debtor fell behind on the car payments, and Ford moved to lift the stay. The debtor did not object to the motion but, after the stay was lifted, the debtor filed a motion to expunge Ford’s claim as fully satisfied by sale of the Vehicle; the Debtor characterized the post-petition seizure of the Vehicle as a “surrender” by the Debtor that was in full satisfaction of the amount owed on the Vehicle. Ford opposed the Motion to Expunge, noting that the Debtor’s original Chapter 13 plan did not provide for surrender of the Vehicle to fully satisfy the debt, and that such a provision would have been objectionable in any event. Ford also requested that after liquidation of the Vehicle, any shortfall be allowed as an unsecured claim.

Judge Cecelia Morris interpreted the “Hanging Paragraph” of 11 U.S.C. § 1325(a)(5) to apply where the debtor’s Chapter 13 plan opts to surrender the collateral, preventing the creditor from asserting an unsecured claim for any deficiency. Put another way, the Court interpreted the Hanging Paragraph as permitting a debtor to surrender collateral in full satisfaction of the claim as part of a Chapter 13 plan.

The impact of this ruling on New York bankruptcy cases is enormous, as debtors who surrender their automobiles no longer need to be concerned with a deficiency increasing their required Plan payments in Chapter 13.

Congratulations to my fellow NACBA member Andrea Malin of Genova & Malin, Wappingers Falls, NY for her excellent representation of this debtor’s interests.