Cite as: Keith M. Lundin, Lundin On Chapter 13, § 62.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
An action for sanctions to remedy a violation of the automatic stay is commenced by filing a motion. This is consistent with other procedures that relate to the automatic stay, for example, requests for relief from the stay under Bankruptcy Rule 4001. Sanctions for violation of the stay are not listed in Bankruptcy Rule 7001 as an action that must be commenced by the filing of a complaint. If the debtor includes a request for an injunction of further creditor action, Bankruptcy Rule 7001 requires a complaint. If the debtor also wants to recover money or property from a creditor, an adversary proceeding may be necessary.1
There will not always be a bright line between motion practice seeking sanctions for violating the stay and affirmative use of an avoidance or recovery power that requires filing a complaint. For example, if the debtor wants sanctions for a creditor’s refusal to return repossessed property and also wants to recover the property that was repossessed, some courts will consider delivery of the property to be a remedy for the stay violation2 (motion practice) while others will insist on an adversary proceeding for turnover.3 Voiding a transfer of property that violated the stay is a common remedy for stay violation that is not easily distinguished from the avoidance of a postpetition transfer under § 549.4 In these gray areas, the debtor avoids procedural defenses by raising the stay violation by adversary proceeding.
Another problem with motion practice to remedy a violation of the stay is that a sanctions hearing often requires more time than is readily available on the typical Chapter 13 motion docket in a bankruptcy court. Stay violations often involve consideration of the creditor’s knowledge of the bankruptcy filing, the debtor’s efforts to give notice, the creditor’s actions and even the history of the creditor’s involvement in other bankruptcy cases. A hearing on sanctions will require witnesses and other evidence. In jurisdictions where motions are grouped together on motion dockets, debtor’s counsel may have to request a special setting to ensure adequate time. This will especially be true under the more stringent hearing requirements for contempt under Bankruptcy Rule 9020.
The stakes at a hearing on sanctions for violation of the stay can be high.5 Discovery in advance of the hearing often determines the outcome. If the sanctions hearing is motion practice, counsel may need to expedite discovery by agreement or by motion to reduce the time for responding to discovery requests.
It has been held that an action for sanctions for violation of the automatic stay survives dismissal of the underlying Chapter 13 case.6
1 See, e.g., Dougherty v. IRS (In re Dougherty), 187 B.R. 883, 885 (Bankr. E.D. Pa. 1995) (IRS did not violate the automatic stay by refusing to pay refund for 1991 in a Chapter 13 case filed in 1994 where the three-year limitations period under 26 U.S.C. § 6511(a) had expired. “[T]he Debtors’ invocation of 11 U.S.C. § 362(a) [is] misplaced. . . . ‘[W]e do not believe that it is a violation of the automatic stay for a party indebted to a debtor to refuse to make payments.’ A debtor can more properly simply file an adversary proceeding to recover the sums due without invoking § 362.”). See §§ 52.1 [ Turnover of Property ] § 50.1 Turnover of Property and 53.1 [ Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances ] § 50.3 Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances.
2 See § 78.1 [ Remedies for Violation of Stay ] § 62.5 Remedies for Violation of Stay.
3 See § 52.1 [ Turnover of Property ] § 50.1 Turnover of Property. See, e.g., Spears v. Ford Motor Credit Co. (In re Spears), 223 B.R. 159 (Bankr. N.D. Ill. 1998) (Debtor must file an adversary proceeding for turnover and for sanctions where debtor alleges that creditor violated the automatic stay by refusing to turn over car it repossessed before the petition.).
4 See § 53.2 [ Postpetition Transfers ] § 50.7 Postpetition Transfers. See, e.g., Smith v. London (In re Smith), 224 B.R. 44 (Bankr. E.D. Mich. 1998) (Foreclosure sale in violation of stay is void and transfer is undone without resort to the avoidance of a postpetition transfer under § 549(c).).
5 See § 78.1 [ Remedies for Violation of Stay ] § 62.5 Remedies for Violation of Stay.
6 See TranSouth v. Sharon (In re Sharon), 234 B.R. 676 (B.A.P. 6th Cir. 1999) (Citing Javens v. City of Hazel Park (In re Javens), 107 F.3d 359 (6th Cir. 1997), dismissal of the Chapter 13 case does not abate a debtor’s action for sanctions for violation of the automatic stay under § 362(h).); Burgner v. Georgia Fed. Credit Union (In re Burgner), 218 B.R. 413 (Bankr. E.D. Tenn. 1998) (Dismissal of Chapter 13 case does not abate debtors’ action for sanctions for violation of stay against creditor that repossessed car after the petition but before dismissal.).