Cite as: Keith M. Lundin, Lundin On Chapter 13, § 62.6, at ¶ ____, LundinOnChapter13.com (last visited __________).
In a new provision not found in § 362 of the Code, BAPCPA carved away at the sanctions available for a violation of the stay. New § 342(g)(2) provides:
A monetary penalty may not be imposed on a creditor for a violation of a stay in effect under section 362(a) (including a monetary penalty imposed under section 362(k)) or for failure to comply with section 542 or 543 unless the conduct that is the basis of such violation or of such failure occurs after such creditor receives notice effective under this section of the order for relief.1
New § 342(g)(2) comes at the end of one of the most important sections of the Bankruptcy Code rewritten by BAPCPA. Detailed elsewhere,2 § 342 contains several new statutory descriptions of “effective notice” in bankruptcy cases. In sometimes contradictory terms, § 342 describes at least four different ways that a debtor or court in a Chapter 13 case can give notice to a creditor that is “effective” for purposes of § 342(g)(2). There is notice to the correspondence address provided by the creditor in at least two communications sent to the debtor within 90 days before the petition that contained the current account number of the debtor.3 A creditor can file and serve a notice of address to be used to provide effective notice in a Chapter 13 case.4 Section 342(f)(1) contemplates a national noticing system enabling a creditor to file with any bankruptcy court a notice of address to be used by all bankruptcy courts or by particular bankruptcy courts, as specified by the creditor, to provide effective notice in all pending cases.5 And then there is notice to a creditor that has designated a person or organizational subdivision to be responsible for receiving notices—notice is not effective until received by the person or subdivision designated by the creditor.6
If a Chapter 13 debtor or the court does not use one of these four methods, notice to a creditor is not effective until it is “brought to the attention” of the creditor. The statute gives no clue what “brought to the attention” means in this context except to say that if a creditor has designated a person or subdivision as described above, notice is not brought to the attention of the creditor until actually received by that person or subdivision.
The upshot of new § 342 is that effective notice in Chapter 13 cases has been vastly complicated. And § 342(g)(2), quoted above, adds insult to injury: Chapter 13 debtors must thread their way through an almost incomprehensible new statutory maze to give effective notice to creditors; and until effective notice of the order for relief is accomplished, a “monetary penalty” may not be imposed for violation of the automatic stay.
Notice of the order for relief in Chapter 13 cases typically is mailed by the clerk of the bankruptcy court or, in some districts, by the Chapter 13 trustee. The addresses used by the clerk or the trustee are the addresses supplied by the debtor in the list of creditors or in the schedules. Chances are there will be some addresses provided by the debtor that are not the addresses necessary to provide effective notice under new § 342. There are going to be repossessed cars and foreclosed houses after Chapter 13 petitions when the defense to sanctions for violation of the automatic stay will be that notice was not effective under § 342.
If notice of the order for relief was not effective under new § 342, the issue will become, what does “monetary penalty” mean in § 342(g)(2)? The parenthetical cross-reference to § 362(k) captures this description of the damages recoverable for a violation of the automatic stay: “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”7
The phrase “monetary penalty” appears nowhere in § 362(k)(1). “Penalty” typically does not include actual damages or compensatory damages for a harm done. Penalties are usually sanctions associated with punishment and deterrence and are not usually measured by the extent of actual damages. If “monetary penalty” ties directly to § 362(k), it would preclude punitive damages that are recoverable for a violation of the automatic stay only in “appropriate circumstances.” Elsewhere in the Bankruptcy Code, Congress makes the distinction between penalties and ordinary compensation for an injury.8
It is important to Chapter 13 practice that new § 342(g)(2) only prohibits monetary penalties for a violation of a stay under “§ 362(a).” There is no mention of the codebtor stay in § 1301.9 When creditor action violates the codebtor stay, the absence of effective notice under § 342 is not an obstacle to recovery of a monetary penalty.
Also, there is no prohibition in § 342(g)(2) against sanctions other than a monetary penalty for a violation of the stay that occurs before there is effective notice of the order for relief. Other sanctions—such as voiding action taken in violation of the stay and imposing an injunction—remain available remedies without regard to the quality of notice of the order for relief.10
1 11 U.S.C. § 342(g)(2), also discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
2 See § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
3 11 U.S.C. § 342(c)(2)(A), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
4 11 U.S.C. § 342(e)(1), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
5 11 U.S.C. § 342(f)(1), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
6 11 U.S.C. § 342(g)(1), discussed in § 365.1 [ Section 342: Notice in Chapter 13 Cases after BAPCPA ] § 4.3 Section 342: Notice What Didn’t Happen.
7 11 U.S.C. § 362(k)(1), discussed in § 78.1 [ Remedies for Violation of Stay ] § 62.5 Remedies for Violation of Stay.
8 See, e.g., 11 U.S.C. § 523(a)(7) (excepts from discharge a debt for “a fine, penalty or forfeiture payable to and for the benefit of a governmental unit, . . . not compensation for actual pecuniary loss”) (emphasis added).
9 11 U.S.C. § 1301, discussed beginning at § 65.1 Cosigners and Joint Obligors Are Protected.