Laws 2325

Kim Huggins

Module 6

                                                                                                                                      1-26-22

Topic Questions:

1. While this may not be an easy fix or solution to the problem of the “computer made me do it,” my supervising attorney needs to let the creditors know that their computer system either needs to be updated or revamped when their debtors file for bankruptcy. Since computers do not operate on their own accord, the employees of the creditor would be responsible for creating this process to make sure notices to those debtors who have filed for bankruptcy are not sent out to avoid automatic stay. As I said, this would take a great deal of work, but by updating the means of communication between creditors and debtors, as well as reprograming the debtor’s computer system, this could help eliminate this error. As noted in the following quote, “Instead, creditors are responsible for their computer systems, just as they are responsible for any employees that do not perform tasks accurately. Ultimately, as HAL 9000 so eloquently put it, computer problems ‘can only be attributable to human error.’” Computers Are People Too: “The Computer Did It” Is No Defense to Violations of the Automatic Stay - Weil Restructuring

As for employees creating an alternative billing system with those debtors who have filed for bankruptcy, this too will include revamping the creditor’s billing system. Again, it would be an intensive project; however, by adding information to the creditors’ accounts payable/accounts receivable database about those debtor’s who have filed for bankruptcy, this would help alleviate violations to the automatic stay. It would take improving the communication process between the creditors and debtors as well as anyone else involved in the bankruptcy filing.

2. In the first scenario, the ABC Collection Company has violated the automatic stay despite notifying Quick Serve, Inc. of the debtor’s bankruptcy filing. As noted in the following case matter, Kinsey, 349 B.R. 48, 52 (Bankr.D.Idaho 2006); 11 U.S.C. § 362(h), “the protection granted by the automatic stay has been viewed as so important and inclusive that once a creditor or other actor is put on notice of a debtor's bankruptcy filing, any actions intentionally taken thereafter, including service of process, in violation of automatic stay may be deemed willful stay violations, and may subject the creditor or other party to a damages award.” (SWAREY v. STEPHENSON | FindLaw).

In the second scenario, again it is a violation of the automatic stay, as the creditors blamed computer error for this error. According to the case, “the evidence reveals that Associated Credit had actually equated Michael P. Campion with Mike P. Campion before it violated the automatic stay. Specifically, when Associated Credit received the notice of the filing of the Michael P. Campion bankruptcy case, it placed the notice in the file of its ‘Mike P. Campion’ account and filed a proof of claim based on the debt owed by ‘Mike P. Campion’ in the Michael P. Campion case.” This was a situation where it was human error on behalf of Associated Credit, when it forgot to cross-check the two names and failed to remember that “Michael P. Campion” was a debtor. As the case matter notes, “once a creditor knows of the existence of the automatic stay, forgetting about it does not erase the knowledge.” In Re Campion, 294 B.R. 313 – CourtListener.com

3. No, it is not a defense if the creditor knows that a bankruptcy petition has been filed; but is not familiar with the automatic stay. As noted in the following case matter, “At a minimum, a party with knowledge of the bankruptcy filing is put on sufficient notice to expect that he will inquire further regarding the meaning of the legal proceeding; such inquiry should give him actual knowledge of the automatic stay and its scope.” See In re Bragg,56 R. 46 (Bankr. M.D.Ala.1985); Matter of Depoy, 29 B.R. at 476. Thus, if a creditor is aware a bankruptcy case has been filed, it is the debtor’s responsibility to seek counsel before filing further action against the debtor.

Yes, it is a defense if a creditor has not received official bankruptcy notice from the debtor or the creditor. As noted in the following case matter, Camelia, 550 F.2d at 51,  “a person cannot be held in contempt of an order about which the person had no knowledge.” Additionally, as the United States Court of Appeals for the Third Circuit stated: “the plaintiff has a heavy burden to show a defendant guilty of civil contempt. It must be done by clear and convincing evidence, and where there is ground to doubt the wrongfulness of the conduct of the defendant, he should not be adjudged in contempt.” Additionally, the case matter presented in this question Flack, 239 B.R. 155, 163 (Bankr. S.D. Ohio 1999), notes the following: “Pre-filing contact between a creditor and a debtor indicating that a bankruptcy may be filed has not been deemed sufficient to constitute actual notice for purposes of establishing a willful violation because, ‘. . . it must be emphasized that it is the filing of a petition and not the debtor’s intent to file which invokes the automatic stay.’”

In the case of Ashby, 36 B.R. 976 (Bankr. D. Utah 1984), no it is not a defense if the defendant “mistakenly” continues to collect efforts after an automatic stay, despite what the attorney “mistakenly” informs them. As presented in the following Opinion 115, “ORS (the defendant) asserted it was not in contempt, as its actions did not involve gross misconduct, bad faith, or willful and malicious intent, The court rejected that assertion, explaining that civil contempt is remedial and, therefore, the defendant’s intent is irrelevant. ORS was found in contempt and was ordered to pay debtor’s costs and attorney’s fees.” (Opinion 115 | District of Utah | United States Bankruptcy Court (uscourts.gov)

This next one,  United States v. Norton, 717 F.2d 767 (3d Cir. 1983), was interesting one as when I saw it involved the IRS, I figured the IRS would be able to use the claim presented in this question as a defense. The claim was “if a creditor continues collection efforts after learning of a debtor’s bankruptcy filing but does so believing in good faith that his debt is not one subject to the automatic stay.” However, the Bankruptcy Court in this case ruled in favor of the plaintiff Norton, as noted in the following: “The Bankruptcy Court also found that, in retaining the debtors’ tax refund, the IRS had violated the automatic stay the Code imposes on creditors of a debtor who files a petition under Chapter 13.⁴Finally, because of the IRS policy of retaining the refunds of all taxpayers who have filed a petition under the Code,⁵ the Bankruptcy Court held the IRS in contempt and imposed a fine of $150.00.⁶ The IRS appealed from these judgments to the District Court which affirmed both the contempt citation and the Bankruptcy Court’s order that the full refund be turned over to the debtor. United States v. Norton (In re Norton), 9 B.C.D. 1033, 32 B.R. 698 (E.D.Pa.1982). The IRS has filed a timely appeal.” (717 F2d 767 United States Internal Revenue Service v. H Norton W a | OpenJurist)

In the additional case referenced in this question, Wilson, 19 B.R. 45 (Bankr. E.D. Pa. 1982), again the aforementioned defense, does not apply as noted in the following: “Therefore, we conclude that any actions taken after the filing of the debtors’ petition under chapter 13 which sought to affect any of the debtors’ interests in their real property was a violation of the automatic stay provisions of the Code. Furthermore, since the actions of the Sheriff were taken after he had knowledge of the debtors’ filing under the Code, the Sheriff is in willful contempt of this court. See, e.g., In re Norton, 15 B.R. 623 (Bkrtcy.E.D.Pa. 1981). We will, consequently, fine the Sheriff for those actions.”

The first case presented here, Walker, 336 B.R. 534 (Bankr. M.D. Fla. 2005), was an interesting one. The debtor was a college student who chose to withdraw from classes after being ineligible for financial aid. She signed an agreement with the private university, noting the following: “by signing the Tuition Payment Forms, Debtor agreed that if she were unable to receive financial aid that she would be still be responsible for her tuition, and that JU would have the right to withhold her transcripts until all outstanding debts owed to the university were paid in full.” However, after the debtor filed for bankruptcy and the school refused to return her transcripts the Court found the following: “The Court holds that JU is in violation of 11 U.S.C. § 362(a)(6) and the university is ordered to immediately release Debtor's transcripts, as soon as the customary fee is paid. However, the Court does not find that JU committed a willful violation of the automatic stay and therefore monetary sanctions are not merited. The Court also finds that 11 U.S.C. § 525 is not applicable in the instant case as JU is a private university. In regards to R.C. Services, the Court finds that no violation of the automatic stay occurred. A separate judgment will be issued in accordance with these Findings of Fact and Conclusions of Law.” (In Re Walker, 336 B.R. 534 – CourtListener.com) So, in this case, the defendant was in violation of the 11 U.S.C. § 362(a)(6) when it came to withholding the plaintiff’s transcripts. However, it was not in violation of the automatic stay when it came to monetary actions.

By contrast in the scenario with Billingsley, 276 B.R. 48, 53 (Bankr. D.N.J. 2002), Temple University was not in violation of an automatic stay. So yes, in this case there was a defense when a debt owed to the creditor (the university) was a non-dischargeable debt – a student loan. As noted, “Under basic contract law, a university is excused from delivering a transcript to a student who is in default under her student loan. It is not a violation of Section 362(a)(6) of the Code to refuse to release a transcript for such a student-debtor in a chapter 13 case. The court therefore denies the debtor's motion to compel Temple University to release her educational transcript to St. Francis College pursuant to 11 U.S.C. § 362(a).” (IN RE BILLINGSLEY | 276 B.R. 48 (2002) | 276br481318 | Leagle.com)

In Green Tree Servicing, LLC v. Taylor, 369 B.R. 282 (Bankr. S.D. W. Va. 2007), this case did not involve a defense to the violation of the automatic stay with the creditor not having knowledge of the bankruptcy filing, but the creditor’s agent did. In this case, according to the following web link (Green Tree Servicing, LLC v. Taylor, 369 B.R. 282 – CourtListener.com) Green Tree Servicing, LLC was aware as noted in the following: “On August 22, 2003, debtor Desiree Taylor filed Chapter 13 bankruptcy. (Id. at ¶ 1). Earlier that day on August 22, 2003, Taylor’s lawyer faxed a letter to Brad Sorrells, counsel for Green Tree in the state proceeding that resulted in the writ of possession, advising that the bankruptcy petition would be filed later that same day. (Id. at ¶ 4; 08-22-03 faxed letter, Ex. 13 at 9-7-04 hrg.). This notice was the first attempt by the debtor to inform Green Tree of the bankruptcy filing. On September 5, 2003, Green Tree dispatched an agent to the debtor’s residence who, while Taylor was absent from the residence, forced his way into the home *285 with a device used to disable door locks. (Bankr.Ct. Order). The agent placed a ‘for sale’ sign in the window inside the residence and left a note on the outside of the front door notifying Taylor that she was obligated to vacate the premises.” This was one of two instances where the creditor’s agent contacted the debtor at their residence, despite the debtor’s bankruptcy filing. Thus, in this case the “bankruptcy court found that Green Tree violated the automatic stay by entering Taylor’s residence on two separate occasions. (Bankr.Ct. Order). It further found that those violations ‘give rise to damages under 11 U.S.C. § 362(h).’” Green Tree Servicing, LLC v. Taylor, 369 B.R. 282 – CourtListener.com

In the subsequent case, Haile v. New York State Higher Educ. Servs. Corp., 90 B.R. 51, 55 (Bankr. W.D.N.Y. 1988), the creditor’s agents argued they were not in violation of the automatic stay. While this case involved a debtor who had defaulted on a student loan, the creditor’s agents’ actions did not equate to a defense in this case scenario, as noted in the following: :An act of contempt is willful when it is made with knowledge of both the bankruptcy filing and the imposition of the automatic stay. In re: Stewart, 65 B.R. 195 (Bankr.W.D.N.Y.1986). However, formal notice of the imposition of the stay is not required if the parties have actual notice. Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 52 (2d Cir.1976), cert. denied, 429 U.S. 1093, 97 S. Ct. 1107, 51 L. Ed. 2d 540 (1977). CBI and the Alan Joseph law office were the undisputed agents of the NYSHESC for purposes of collecting the unpaid student loan debt. They clearly had knowledge of Ms. Haile's bankruptcy and of the automatic stay because they had been notified both by telephone and in writing. That knowledge is imputed to the principal, the NYSHESC. See, e.g., Mallis v. Bankers Trust Co., 717 F.2d 683, 689 n. 1 (2d Cir.1983). Because the NYSHESC had knowledge of the bankruptcy filing and of the automatic stay as imputed to it through its agents, its actions can be considered willful.” (https://law.justia.com/cases/federal/district-courts/BR/90/51/1881798/)

Reflection Questions:

1. The most interesting aspect of this week’s module was how a computer error can cause so much havoc for both the creditor and debtor in a bankruptcy case. I would be interested to find out just how often the automatic stay is violated when it comes to this matter based on computer error. Additionally, since computers have been around for so long now, one would think when it comes to bankruptcy, creditors would figure out a competent method to avoid this matter. I am sure it would not be an easy task; however, one would think it would be on the forefront of creditors’ agenda to make sure this problem does not arise.
2. When it comes to social and ethical issues, I would have to choose the cases where creditors’ agent “knowingly” violated the automatic stay. The first one that comes to mind was the case of Green Tree Servicing, LLC v. Taylor. The creditor’s agent knowingly violated the automatic stay, and then tried to pass it off like they were unaware of the debtor’s bankruptcy. Thus, causing the debtor to have a panic attack in the process. Another social and/or ethical issue was with e Wagner, 74 B.R. 898 (Bankr. E.D. Pa. 1987). This was a highly unethical maneuver on behalf of the defendant. It seems like his attorney was doing everything he could to make sure the defendant was aware of what to do and what not to in a bankruptcy situation; however, he went ahead and made his own decisions (wrong or right). All of the situations presented here in this module had various social and/or ethical issues. It just depended how the parties interpreted and responded to the situation.
3. While the process of the automatic stay was initially one of the more confusing with bankruptcy, this week’s module really did help me to have a better understand as to how this process works. It is good to know that such a process is intact when it comes to bankruptcy, as I always wondered how people who filed for bankruptcy can get back ahead when they are in this situation. As far as confusing, as usual I just took my time rereading through the cases noted in the questions above to better understand how the process of the automatic stay could be violated.