Collectors Without Warning Win Stay Violation Action; Ag Debtors Not Protected by Consumer Laws

07 Sep Collectors Without Warning Win Stay Violation Action; Ag Debtors Not Protected by Consumer Laws

Collection attorneys without warning of a bankruptcy stay won an action by farmers against them last week. The Court ruled 1) actions for violation of the bankruptcy stay require a warning letter, and 2) consumer protection laws don’t apply to collection of Kansas agricultural debts. Smith vs. Butler, 07-7065, (D.Kan. August 29, 2008).

The Smiths are family farmers who wrote bad checks to the local cooperative for fuel and cattle feed. The Smiths filed a chapter 12 bankruptcy two months later. The attorneys sued the Smiths in state court to collect the checks. The Smiths sued the attorneys in bankruptcy court for violation of the bankruptcy stay on collection and for violations of the Fair Debt Collection Practices Act and the Kansas Consumer Protection Act.

Debtors lost their stay violation claim because they didn’t tell the collection attorneys about the bankruptcy filing. Citing Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1172 (10th Cir. 2007), the Court ruled that recovery under 11 U.S.C. 362(k)(1) requires proof that the creditor knew of the automatic stay and intended the actions, though no specific intent is required.

The Court found the following uncontroverted facts to be true: the Smiths did not respond to collection letters. The attorneys filed a collection lawsuit. The Smiths, knowing they were debtors in a bankruptcy case, did not tell the attorneys about the bankruptcy case in their state court answer to the lawsuit. In a reply to a counterclaim, the Smiths finally disclosed the bankruptcy. The collection attorneys dropped the lawsuit once they knew of the bankruptcy.

The Court ruled against the debtors on the consumer violation claims saying the those laws did not apply to Kansas agricultural debts.

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Jill Michaux has helped Kansas consumers with debt problems for three decades. She and her partner, Mark Neis, are Topeka's only bankruptcy specialists, board certified in consumer bankruptcy law by the American Board of Certification. She help start the National Association of Consumer Bankruptcy Attorneys.
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