Emotional Distress Damages for Violations of the Automatic Stay

Emotional Distress Damages for Violations of the Automatic Stay

 
In this LexisNexis Emerging Issues Analysis, Mazy Hedayat examines the issue of emotional distress damages for violations of the automatic stay, as well as the burdens of proof and persuasion to be met by any who wish to seek such damages.
 
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The author writes: The signature feature of bankruptcy is the automatic stay -- an automatic, universal, self-executing injunction against all actions to collect, enforce, commemorate, or advance claims against property of the bankruptcy estate. 11 U.S.C. § 362(a) ("Automatic Stay" or "Stay"). The Stay serves the dual purposes of safeguarding debtor peace of mind and maximizing value for unsecured creditors. How does it manage to do both? By forcing a quiet period on all creditors while the Trustee examines and evaluates property of the bankruptcy estate ("Estate").
 
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Establishing Automatic Stay Violations

The elements of a cause of action for violation of the Automatic Stay are modest. To establish a violation the party must show the following by a preponderance of evidence: (a) that a petition was filed; (b) that a creditor attempted to exercise dominion or control over property; and (c) that said property belonged to the bankruptcy estate at the time. Intent to violate the Stay is not an element and need not be shown in order to establish that the Stay was violated. Awards in such circumstances are limited to damage to the Estate: generally, disgorgement of Estate property.

Establishing Intentional Violations

Intent need to be shown to allow for the Estate to recover from violator since the Stay must often be used to dramatic effect (stopping foreclosure, curtailing the sale of a home or car), such delay would render it useless. However, where a violation is shown to have been intentional, the Debtor may also recover damages. These damages are aimed at discouraging further violations by creditors such as the one at bar and include expenses incurred by the Debtor and punitive damages.
 
 
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