CREDITOR IMPRISONS DEBTOR VIOLATING BANKRUPTCY STAY

Let’s say that you purchased a lawnmower using the home depot credit card. Thereafter, you decide to file for bankruptcy because you owed $50,000 of credit card debt. While in bankruptcy, you agree to abandon the lawnmower because you decide not to keep it. Home Depot attempts to pick up the lawnmower from you but you do not cooperate. So, Home Depot sues in state court to physically recover the lawnmower which fails. Then Home Depot calls the police to have you arrested for grand theft of the lawnmower. You file an adversarial proceeding in bankruptcy court against creditor alleging that its collection efforts violate the automatic stay. Home Depot responds that it is just trying to recover property that you abandoned. Who will win?

In Re Young, Twin States Finance, Inc., sued the debtor in August 2009 in State court seeking to recover a lawnmower and other personal property that the debtor purchased through a loan from the creditor. In October 2009, the debtor frilled for Chapter 13 relief. Twin States was listed as a creditor. In December 2009, the debtor agreed to abandon non-exempt personal property that was collateral for Twin States’ claim. An order was entered to that effect. The order expressly stated that it did not terminate, annul, or modify the automatic stay. Twin States, instead of filing a motion for relief from automatic stay to allow it to recover the lawnmower, attempted to recover the abandoned property by contacting debtor to surrender the lawnmower. But the debtor did not cooperate. So, Twin States amended its State court lawsuit to seek replevin (recovery of personal property). Debtor did not answer the amended complaint for replevin. Creditor obtained a default judgment which Twin States attempted to enforce against the lawnmower and other personal property of the debtor including two pieces of underwear, one of which debtor was wearing. Creditor sent two navy seals “to search for and recover” the subject lawnmower and “to remove” the underwear from debtor. A dozen unmanned drones were dispatched but no lawnmower was found. When the replevin attempt failed, the police were called in. The debtor was arrested on a charge of grand larceny of a lawnmower. Bond was set at $30,000. After the charges were dismissed at the preliminary hearing, the creditor went back to the police, who went to the district attorney, who obtained a grand jury indictment against the debtor for larceny. By this time the debtor had filed an adversary complaint against Twin States alleging that its collection effort violated the automatic stay. Twin States said it was just trying to recover the property that the debtor abandoned.

The bankruptcy court noted that even if Twin States restricted its actions to attempts to recover the abandoned property, it still violated the automatic stay. “Just because abandoned property is no longer property of the bankruptcy estate, does not mean that the automatic stay has been terminated, annulled, or modified,” the court said. “Actions prohibited by Section 362(a), even those against property that is not property of the bankruptcy estate, are stayed in a Chapter 13 case until the earliest of the case closing, the case dismissing, or the debtor receiving his discharge.” But even if the abandoned property was no longer subject to the automatic stay, Twin States’ replevin action against estate property, and actions against the debtor himself clearly violated the stay. “It is absurd for Twin States to justify the Arrest Warrant and Indictment based on the provisions of the Abandonment Order, which mentions nothing about the debtor’s loss of liberty. Moreover, the Court rejects the defense raised in Twin States Brief that the criminal proceedings against the debtor were exempted from the automatic stay under Section 362(b)(a), which allows for the “commencement or continuation of a criminal action or proceeding against the debtor,” the court said. Finding that Twin and its agent willfully violated the automatic stay, the court ruled that they were liable for civil damages to be determined after trial.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.