When bankruptcy attorneys go too far

by. Henry Meier

I have a sneaking suspicion that this morning’s blog will warm the hearts of many credit union employees responsible for collecting debts.  It also provides useful instruction about the dos and don’ts of collection efforts once a member has declared bankruptcy and your credit union has notice of an automatic stay.

I know many of you already know this, but in case your second cup of coffee hasn’t kicked in, section 362(a)(6) of the bankruptcy code imposes an automatic stay applicable to all entities prohibiting any act to collect, assess or recover a claim against a debtor that arose before the bankruptcy filing.  A willful violation of this provision occurs anytime a creditor is put on notice of an automatic stay and continues to try to collect a debt.  Violations can result in damages and payment of a debtor’s attorney fees.

The case I am talking about, which was recently highlighted in an article in the New York Law Journal, is called In Re: Beth M. Squire, 13-62070 and is currently being appealed to the district court.  The facts are straight forward enough.  Consumer took out an unsecured loan with Berkshire Bank, which she was paying off using automatic ACH withdrawals from her account at Citizens Bank.  That money was pulled on the 30th of each month.  No one denies that Berkshire received notice of the Chapter 7 bankruptcy filing on January 3, 2014 or that two weeks later, the bank reached out to the debtor’s attorney James Selbach to see if his client wanted to continue to make the ACH payments.  Mr. Selbach acknowledged receiving the phone call but never called the bank back.  In the meantime, Berkshire Bank never cancelled the ACH payment and on January 30th it attempted to transfer $199.53 from the debtor’s Citizens bank account.  This account was empty and the debtor was charged $35 due to insufficient funds.

The case gets interesting for our purposes because on the same day that the bank made the ACH transaction, Mr. Selbach filed what the bankruptcy court described as a “boiler plate” motion claiming that Berkshire Bank violated the automatic stay and seeking not only damages but attorney fees.

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