What Are The Creditors Duties Once They Have Been Informed Of A Bankruptcy Filing- Part 3

31 May What Are The Creditors Duties Once They Have Been Informed Of A Bankruptcy Filing- Part 3

In this article, I will discuss the final duties imposed on creditors when they have been notified that a bankruptcy case has been filed.

7. Duty to stop collection efforts. Creditors obviously have a duty to stop all collection efforts when they receive official notice from the bankruptcy court that a bankruptcy petition has been filed. But what if they find out from a phone call from the debtor or the debtor’s attorney?

Many courts have ruled that oral notice of the bankruptcy from the debtor or counsel creates the duty on the creditors part to stop all collection efforts. An Ohio bankruptcy court awarded punitive damages where, despite repeated calls by the debtor’s attorney staff, a vehicle that had been repossessed pre-petition was sold. A Utah District Court upheld a bankruptcy court punitive damage award of $20,000 where the creditor repossessed debtor’s vehicle although the debtor told them he filed a Chapter 7 case. A South Carolina bankruptcy court ruled that the creditor’s disbelief of the debtor’s oral contention that a bankruptcy case had been filed is not a defense to a stay violation motion. Similar rulings were made by bankruptcy courts in Minnesota, Tennessee and Florida.

The 8th Circuit went so far as to rule that even a creditor that was not listed in the debtor’s bankruptcy petition violated the stay when it ignored the verbal notice that a bankruptcy had been filed by the debtor. The newly appointed bankruptcy court judge in Syracuse, New York, Judge Margaret Cangilos-Ruiz recently spoke directly to this issue. She declared; “I believe that debtors should be taken at their word when they mention that they filed bankruptcy and give a case number.”

8. Duty of further inquiry. Even if the creditor has no notification from the court AND no notification from the debtor that a bankruptcy petition had actually been filed, many courts have found that if there was a reason for the creditor to believe that one might have been filed, they have a duty to independently determine if it was filed.

An Ohio bankruptcy court held that a creditor should have called the court before repossessing property after debtor’s counsel had indicated that filing was “imminent”. Courts in Alabama, Indiana and Rhode Island held that if the creditor had sufficient facts which would cause a reasonably prudent person to make further inquiry, that it was not necessary that a creditor had formal notice of the filing of a bankruptcy case. Courts in Ohio, Oklahoma and West Virginia have found that after receiving a phone call from counsel, the creditor has a duty to definitely ascertain for himself whether the petition has been filed. Another Ohio court held that “Willful blindness may be deemed to be the equivalent of notice”.

Next: Are Emotional Damages Recoverable When A Creditor Violates The Automatic Stay?

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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