Is a Criminal Complaint a Stay Violation?

03 Oct Is a Criminal Complaint a Stay Violation?

Some debts can also be grounds for criminal prosecution. The most common example is writing a bad check. If a creditor files a criminal complaint after a bankruptcy is filed, do they violate the automatic stay? As with most complicated legal questions, the answer is maybe.

Typically these bad check cases develop when someone simply makes a mistake and doesn’t realize they are writing a check for more than they have or where the check is actually a loan against a post-dated check (called payday loans). Depending on the location, both can be a crime.  In many places, however, the writing and accepting of a post-dated check which later bounces — without the consumer trying to avoid paying it, like closing the account or stopping payment — is not a crime. As part of a general financial meltdown, these debts are part of what leads to many bankruptcies.

Some cash-checking entities then refer the bad checks to the prosecutor.  Prosecutors across the country pursue bad check cases for one big reason — money. Collecting these checks for businesses yields regular revenue to maintain financially-pressed prosecution offices. Most bankruptcy courts will not enforce the automatic stay against a prosecutor.

Can the court punish the creditor for filing the criminal complaint after a bankruptcy is filed? Some courts absolutely refuse to do so since prosecution of crimes necessarily depends on the cooperation of the public and crime victims to function.  But some courts will look more closely at the motivation of the creditor in filing the complaint.  If the purpose was to recover the debt — by having the prosecutor act as debt collector to circumvent the stay or discharge — then the court will sanction the creditor.

Judge Speers in Northern Ohio recently reviewed this situation.  He reaffirmed his district’s policy of looking at the intentions of the creditor.  In the case of a check-cashing/payday-type lender though, he accepted the argument that the creditor’s routine prosecution of all bad checks was intended to preserve the value of the business was sufficient non-collection activity to avoid liability for a stay violation.

The lender reasoned that if word got out they did not prosecute bad checks, then they would become a regular target of bad checks and the business would quickly fail.  The judge also noted that the prosecutor — although dropping the charges in the particular case at issue — would sometimes prosecute bad checks even where restitution was made to the creditor.  So the public policy to protect the reliability of checks was also being pursued (along, no doubt, with the collection of debt).

The flaw in that reasoning is that every lender who tries to collect all the debts owed to it is trying to preserve the value of the business.  If word got out that Citibank would not sue to collect credit card debt, a lot of people would suddenly feel less compelled to pay and Citibank’s business would start going down the tubes.  Collecting debt as aggressively as legally allowed is necessarily part of maintaining a business’ value.  They are two sides of the same coin — lending and collecting.  The fact that a prosecutor may choose to pursue some bad check cases even where the lender has been made whole should be irrelevant to the motivation of the lender in using the prosecutor’s services to collect a debt.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2019 I served on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. Our Report recommended numerous changes to improve bankruptcy law to make it serve everyone in the process more effectively. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website:
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