Law Firm did Not Willfully Violate Automatic Stay, even though its Actions caused Debtor to Spend time in Jail

Law Firm did Not Willfully Violate Automatic Stay, even though its Actions caused Debtor to Spend time in Jail

As it pertains to this appeal, Appellant Debtor claimed in bankruptcy court  that Appellees Southlake and the Law Firm willfully violated that court’s injunction against collecting her debts, see 11 U.S.C. § 524(a)(2), which resulted in her being arrested pursuant to a state court bench warrant.

Debtor’s injuries arose out of Law Firm’s aggressive attempts to collect her debt through
state court proceedings—even as, unbeknownst to it, Debtor’s bankruptcy case was pending—
and Debtor’s failure to attend state court hearings.

At the turn of the century, Debtor owed $518 to Southlake. Believing that Debtor
would not pay the debt, Southlake referred her account to Law Firm for collection. In
2001, the firm filed a collection action in state court. A year later, a default judgment was entered against Debtor in the amount $957. The firm then started supplemental proceedings to collect on the judgment. During this period, Debtor made sporadic payments on the debt but did not pay it in full.

When Debtor filed a Chapter 7 petition in the bankruptcy court, she listed Southlake, but
not Law Firm, on her Schedule F; nor did she provide notice of the bankruptcy in the state court
case. By law, the notice is designed to protect the debtor from the creditors and operates as an
injunction against collecting any debts.

The trial court found that the notice of Debtor’s bankruptcy was mailed to and received
by Southlake but Southlake did not pass it on to Law Firm, even though its customary practice was to pass on such notices to Law Firm. The trial court found that, although the notice was received at Southlake’s office, Plaintiff was unable to prove that anyone at Southlake handled it.

Meanwhile, Law Firm,  unaware of the bankruptcy filing, resumed its supplemental
proceedings against Debtor in state court. After Debtor failed to appear at the hearings,  law Firm  petitioned for a bench warrant which the state court issued at the beginning of 2010, several months after Debtor’s Chapter 7 petition had been filed.

In January 2011, the bankruptcy court entered a Discharge Order which discharged the debt
owed to Southlake.

In March 2011,  Debtor was driving a car when it got a flat tire. A police officer stopped
to assist her, but then to her surprise arrested her due to the outstanding warrant. Sterling spent three days in jail, until she was able to contact her bankruptcy attorney.

On the basis of these facts, the trial court found that Law Firm did not act willfully to
violate the bankruptcy court’s injunction against collecting Debtor’s debt because, since no
notice was sent to it either by Debtor or Southlake, it was unaware of the bankruptcy filing. As
for Southlake, the trial court found that, although the bankruptcy notice was properly mailed to
and received at Southlake’s office, no one at Southlake saw it or was aware of it.  The trial court found both Law Firm and Southlake not liable because neither of them willfully acted contrary to the bankruptcy court’s injunction.

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