In Stay Violation Proceeding, Florida Bankruptcy Court Awards Debtor $45,500.00 against the Creditor, $15,000.00 against Creditor’s Counsel, Plus a Show Cause Order Why The Court Shouldn’t Impose Additional Sanctions Against Counsel

In Stay Violation Proceeding, Florida Bankruptcy Court Awards Debtor $45,500.00 against the Creditor, $15,000.00 against Creditor’s Counsel, Plus a Show Cause Order Why The Court Shouldn’t Impose Additional Sanctions Against Counsel

The Bankruptcy Court for the Northern District of Florida recently issued an opinion that all debtors’ counsel should read. The court reviewed in detail the requirements of the automatic stay, including the duty to correct a violation, the bases for awards of actual damages (including emotional distress) and punitive damages against both a creditor and the creditor’s counsel.

In this case the Debtor (pro se) owned property in Florida and made mortgage payments to The Deltona Corporation (Deltona). The Debtor fell behind on payments. The Debtor filed for chapter 13 bankruptcy in two previous cases in the Northern District of Georgia. This, the third, case was filed one day before the foreclosure sale of the property.

Immediately after filing the instant case, Debtor travelled to the county seat to deliver copies of her chapter 13 petition to Deltona’s state counsel and the clerk of court. She also advised them of the bankruptcy verbally and in writing. The following day Debtor showed up for the foreclosure sale and asked the deputy clerk to cancel the sale. He referred her to the presiding judge. In the meantime, Deltona’s counsel convinced the clerk to disregard the Debtor and the clerk conducted the sale of the property. Subsequently the locks on the property were changed and Debtor was locked out of her property from March 27, 2018 to June 29, 2018. Deltona then evicted a third-party tenant from the property and turned off the utilities.

Within four days of the foreclosure sale, Debtor spoke with Deltona’s bankruptcy counsel who did not acknowledge the stay violation or offer to correct the situation.

At the hearing on the Debtor’s motion to extend stay, Deltona’s bankruptcy counsel did not inform the court that Deltona had completed the sale post-petition. Instead the court found that counsel falsely argued that the stay relief obtained in Debtor’s previous bankruptcy was entered pursuant to 11 U.S.C. §362(d)(4) and therefore no stay existed in this case. The court overruled this objection and granted the extension of the stay.

The Debtor filed a motion for sanctions alleging serious and continuing stay violations. The court entered an order to show cause (OTSC) against Deltona why it should not be held in willful contempt of the automatic stay. At the initial hearing on the OTSC, Deltona gave the keys to the property to the Debtor. Later that same day the police were sent to the property based on a report that a suspicious person was on the premises of a “foreclosed property.” The police had an encounter with the Debtor and the Debtor was required to provide proof of identification. In between the initial and final hearing, Deltona had an employee drive by the property thirteen (13) times which were noticed by the Debtor.

The court found that Deltona’s bankruptcy counsel advocated positions unsubstantiated by law and made an unreasonable request to the court. Counsel argued, as an affirmative defense, that the stay should be annulled because the Debtor filed this bankruptcy in bad faith. The court found this improper as this request must be brought by a motion. Further, after the stay violations were uncovered, instead of taking appropriate action to vacate the sale, Deltona’s counsel requested that the bankruptcy court do it.

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