Where Creditor Released Garnishment within One Week of Learning of Bankruptcy, Debtor Did Not Have a Case Under §362(k) for Stay Violation

Where Creditor Released Garnishment within One Week of Learning of Bankruptcy, Debtor Did Not Have a Case Under §362(k) for Stay Violation

Both parties to this adversary proceeding seek summary judgment on the complaint filed by the Debtor against Creditor. The Debtor asserts that he’s entitled to summary judgment on his complaint alleging causes of action under §§ 362(k) and 547(b) of the Bankruptcy Code because the undisputed facts show that Creditor willfully violated the automatic stay when it allegedly failed to timely stop a wage garnishment by which it obtained $1,252.03 prepetition and $422.68 postpetition.

Creditor contends that summary judgment in its favor is appropriate because it did not willfully violate the automatic stay as evidenced by its timely action to stop the wage garnishment and return the garnished funds to the Debtor. Likewise, it asserts that its return of the garnished funds moots the Debtor’s action under § 547(b) notwithstanding its argument that the Debtor does not have standing to pursue the action.

Creditor obtained a judgment against the Debtor in State Court. On May 19, 2016, Creditor obtained an Execution, which directed the Debtor’s employer to garnish his wages and pay the same to Creditor’s lawyer. From that date through August 24, 2016, the date the Debtor filed for bankruptcy relief, the Debtor’s employer garnished his wages and remitted monthly payments to Creditor. On August 30, 2016, Creditor filed a release of its  Execution and provided a copy of the same to the Debtor’s employer.

Presumably because of the timing of the Debtor’s bankruptcy filing and the filing of the release, the Debtor’s employer continued to withhold wages on September 1 and September 8, 2016. Thereafter, the Debtor’s employer stopped withholding a portion of his wages pursuant to the garnishment. The final two remittances received by Creditor were both postpetition; on September 7, 2016, and October 9, 2016. On September 7, 2016, Creditor received $551.17. According to Creditor, and not contested by the Debtor, the $551.17, represented the funds withheld from the Debtor’s paycheck during the month of August 2016, including for one post-petition pay period. Lastly, on October 9, 2016, Creditor received the final remittance of $286.56 for wages garnished during the month of September 2016 before the Debtor’s employer updated its payroll system to account for Creditor’s release of the garnishment. Ultimately, the Debtor’s employer withheld $1,251.03 prepetition and $422.68 postpetition. On September 7, 2016, Creditor remitted $551.17 to the Debtor. On October 9, 2016, Creditor turned over to the Debtor the final remittance of $286.56 that it received from the Debtor’s employer. On October 11, 2016, Creditor offered to the Debtor a check in the amount of $835.98, which represented the remaining funds withheld pursuant to its garnishment of the Debtor’s wages. According to Creditor, it presented the payment in the hopes of amicably resolving the adversary proceeding. The Debtor, however, declined the payment in exchange for a resolution of the proceeding. By December 23, 2016, Creditor returned all of the garnished wages to the Debtor via a direct deposit.

The Debtor asserts that he is entitled to summary judgment on his action under §362(k) because the undisputed facts lead to the inexorable conclusion that Creditor willfully violated the automatic stay. Specifically, he contends that Creditor failed to timely cease collection activity against him and return the garnished wages to him after it learned of his bankruptcy case. Creditor, however, contends that it acted timely to stop the garnishment and return the garnished wages to the Debtor.

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