Am I in violation of automatic stay?

Question

The PM company was awarded a judgement against a former tenant. The Pm later went out of business. I then filed a motion to substitute party so I could collect from the tenant. The tenant was notified of my filing, failed to appear in court and I was awarded the motion to substitute party. The next month the tenant files for bankruptcy which I did not find out about until trying to garnish wages via her employer.

Prior to attempting to garnish wages, I was successful at levying her bank account. When I learned of the BK I called the court and was told I could still levy her account just not her wages.

I make a 2nd attempt to levy her bank and her attorney sends me a violation of automatic stay. I have to appear in court next week and the former tenant wants lost wages, return of NSF fee and attorneys fee. I then look up the creditors she has named in her bankruptcy and see it's the PM Company and not me.

Am I in violation of the automatic stay since I am not named a creditor? Just wondering how this will be looked at and if it's worth it to obtain an attorney. I am in TN.

Chris K. · Answer

@Candace Ellison

The fact that you tried to garnished wages is probably excusable. After all, you didn't know about the bankruptcy.

The fact that you tried to levy the account after learning about it is very bad. Moving forward, you always need to stop and plan if you learn that a debtor is in Bankruptcy.

I would hire an attorney. I don't know whether a court would consider you a "sophisticated" party. But a willing violation of the automatic stay can have severe consequences. The fact that you are not named as a creditor is not a strong defense. The law expects you to know that if the debtor is in bankruptcy, you must stop all collection efforts.

Telling the court "someone in your courthouse told me this was okay" is not going to work either. The federal courts are a well-oiled machine and they would never allow an employee to give such advice. Even if someone did, proving it is a monumental challenge. Unless you have very solid proof otherwise, it's hard to convince the court that it did something wrong.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Wayne Brooks · Answer

Yeah, you screwed up trying to levy the bank account after you knew she was in BK.  You acquired the debt from the PM, it’s the same debt regardless of who was originally named as the creditor.

Account Closed · Answer

Bankruptcy is national law with a few state by state particulars and supercedes state law. If you took over debt that has been included in a bankruptcy, it is always wise to follow bankruptcy law. It is likely you have to appear or you will lose your argument and be liable for any funds you received. It isn't scary to appear but you will be facing a presumably experienced bankruptcy attorney who will know bankruptcy law. I presume you aren't up to speed on bankruptcy law (few are or have the reason to be) but the law is "circular" sometimes and can be quite non-intuitive which leads to surprises. An attorney will want a retainer of about $500 to represent you with no guarantee of success. You haven't indicated what your relationship to the PM is, so it is unclear if the judge will even accept your response.

So, that being said, if the amount involved is substantially greater than $500 it might be advisable to discuss it with an attorney. However, I suspect the opposing attorney wouldn't have bothered to send you a violation of automatic stay (which the court takes very seriously and could cause a problem for the opposing attorney if he filed one incorrectly) so I'd be inclined to assume you owe the money to be paid back to the estate of the debtor. I would ask the trustee how to do that just so you know the process if that should be the case.

Bottom line, if you don't show, you lose. If you do show and present to the court your reasoning, the court may agree with you and you keep the money. If you have an attorney represent you, your chances of prevailing are greatly increased but so are your costs.

It's a business decision at this point.

Ryan Seib · Answer

@Candace Ellison were you successful in levying the account after learning of the BK? How much would you have taken from the estate after they filed BK? The trustee of the estate is the one who cares about the violation of the stay, not so much anyone else. The trustee is a lawyer who gets paid based on total value of the estate so you are taking money out of his/her pocket if you violate the stay. So keep that in mind. That said most trustees seem pretty nonchalant about minor violations. Of course the debtor attorney is a factor if he/she is a bulldog. But still I find it hard to believe the BK court is going to treat this as a major breach other than ordering you to pay back what you took and maybe a penalty for the violation itself. That said I would also recommend highly retaining a BK attorney yourself to defend you in court rather than appear alone.

Am I in violation of automatic stay?

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