§ 62.3     Sanctions or Contempt?
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 62.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

The Code, Rules and case law are not clear whether the proper remedy for violation of the stay is sanctions, contempt or both. If the debtor has been injured by a willful violation of the stay, 11 U.S.C. § 362(h) provides a statutory remedy that includes actual damages, costs, attorneys’ fees and punitive damages “in appropriate circumstances.”1 The cases finding a creditor in willful violation of the stay sometimes speak in terms of contempt.2 In other cases, the violator is sanctioned without mention of contempt and ordered to undo the action taken in violation of the stay or ordered to compensate the debtor.3

[2]

Debtor’s counsel can plead both contempt and sanctions when attacking a violation of the stay, but it is not obvious that adding contempt gets the debtor anything useful. The statutory remedies in § 362(h) are broad, and contempt carries some distracting baggage. The burden of proof with respect to contempt may be more onerous than in an action under § 362(h).4 The 1984 amendments to the Code may have impaired the contempt authority of the bankruptcy courts.5 When contempt is sought, Bankruptcy Rule 9020 will control. Notice that contempt is alleged and the effects of contempt orders are technical matters described with unusual precision in Bankruptcy Rule 9020. A motion for sanctions under § 362(h) is not so carefully circumscribed by the Rules. Adding contempt to a request for sanctions for violating the stay can be an invitation to technical defenses based on strict application of Bankruptcy Rule 9020.


 

1  See § 78.1 [ Remedies for Violation of Stay ] § 62.5  Remedies for Violation of Stay.

 

2  See, e.g., In re Seal, 192 B.R. 442 (Bankr. W.D. Mich. 1996) (Car lender intentionally violated the automatic stay, maliciously harassed the debtors and was in contempt of court orders to provide the debtors with a car title noting the creditor’s first lien. Stay violations included contacting the debtors after the petition, demanding payment, standing in front of the debtor’s car in the parking lot after a bankruptcy court hearing and intimidating the debtors over the phone.); In re Harrison, 185 B.R. 607 (Bankr. D. Kan. 1995) (Collection agency that violated the automatic stay by bringing suit in state court after notice of the Chapter 13 filing is subject to sanctions for civil contempt and should pay a $150 fine to the debtor, not to the court.); Hubbard v. Fleet Mortgage Co. (In re Hubbard), 70 B.R. 122 (Bankr. E.D. Ark. 1985), aff’d, 810 F.2d 778 (8th Cir. 1987); In re Shafer, 63 B.R. 194 (Bankr. D. Kan. 1986).

 

3  See, e.g., Flynn v. IRS (In re Flynn), 169 B.R. 1007 (Bankr. S.D. Ga. 1994) (Section 362(h) “creates independent federal bankruptcy cause of action which is based exclusively upon a violation of the automatic stay.”); Walker v. California Mortgage Servs. (In re Walker), 67 B.R. 811 (Bankr. C.D. Cal. 1986); In re Hebert, 61 B.R. 44 (Bankr. W.D. La. 1986); LaTempa v. Long, 58 B.R. 538 (Bankr. W.D. Va. 1986); Virginia Union Univ. v. Parham, 56 B.R. 531 (Bankr. E.D. Va. 1986); In re Sumrall, 56 B.R. 134 (Bankr. M.D. Fla. 1985); In re Rio, 55 B.R. 814 (Bankr. M.D. Ala. 1985).

 

4  See Ford Motor Credit Co. v. Florio (In re Florio), 229 B.R. 606, 607–08 (S.D.N.Y. 1999) (The burden of proof for contempt for violation of the stay may be different than the burden of proof under § 362(h) for sanctions for violation of the stay: “It is well established that the ‘clear and convincing’ standard applies only when there is an adjudication of contempt for the violation of an automatic stay; if that is not the case, the ‘clear and convincing’ standard of proof does not apply. . . . In this case, the Bankruptcy Court awarded only actual damages and attorneys’ fees; no finding of contempt was either sought or imposed. Accordingly, the ‘clear and convincing’ standard of proof does not apply and the Bankruptcy Court needed only to find a willful violation of the automatic stay in order to impose sanctions under 11 U.S.C. § 362(h). . . . ‘[I]f a party charged with violating the stay knows that the stay is in effect, any deliberate act taken in violation of the stay justifies an award of actual damages.’”).

 

5  See, e.g., In re Sequoia Auto Brokers, Ltd., Inc., 827 F.2d 1281 (9th Cir. 1987).