Automatic Stay Key Feature of Chapter 7 Bankruptcy

One of the key protections afforded to debtors who file Chapter 7 bankruptcy actions is the automatic stay. Upon filing a Chapter 7 bankruptcy case, the court, without prompting from interested parties, issues an automatic stay under § 362(a) of the bankruptcy code. The automatic stay immediately prohibits any creditors, litigants or other claimants from pursuing additional action against the debtor or any property in which the debtor harbors an interest, legal or merely possessory. If the bankruptcy court is made aware of parties – after receiving due notice that the stay is in effect – violating its edict, the court can award damages to the debtor if he or she incurs damage. Those damages may be enhanced if it can be proven an offender wilfully breached the stay.

A recent decision by the United States Bankruptcy Court in New Mexico illustrates the pitfalls of being an overzealous judgment creditor after notice of the automatic stay is received. In the case of In Re Escobedo, No. 7-14-11269 TL, Adv. Pro. No. 14-1069 (U.S. Bankr. Ct. D. N.M. 2014) a debtor who recently had lost a case in the Third Judicial District Court of New Mexico (the “state action”) in which he was found to have breached a contract to purchase certain real estate upon which he resided. While that court did not award damages to the plaintiff that sued Mr. Escobedo, it did order that he vacate the premises by a certain date. Before that time arrived, Escobedo filed his Chapter 7 bankruptcy case triggering the automatic stay.     

Eager to retake the property on which Escobedo resided, the plaintiff (now also a judgment creditor) attempted to have Escobedo and his family evicted by sending a deputy from the Dona Ana County Sheriff’s department to get the Escobedo family to leave the premises. While they cooperated by leaving so as to avoid an ugly situation, the action by the Plaintiff violated the stay, Ms. Davis (the Plaintiff) could have first sought relief from the automatic stay, her failure to do so exposed her to significant monetary liability. Arguing that the refusal to comply with the stay was wilful, the debtor sought and recovered actual damages he incurred as a result of losing the benefit of the stay and having to return from his new job – which he then lost- to litigate matters dealing with the eviction and breach of the stay. He also recovered his attorney’s fees and costs incurred as a result of the breach and even punitive damages, a category of damages which are difficult to win.

Ironically, this Court also granted Ms. Davis’ motion to get relief from the stay so she can have the state action judgment enforced; i.e., she can now proceed with the eviction legally. This relief only applies prospectively. The fact she could prove her case for such relief indicates she could have probably secured it before she had rashly sought to have the Escobedos evicted.  The moral of the story, therefore, is never violate an automatic stay issued by a bankruptcy court but instead try to get the court to approve relief from its effect.

In Albuquerque, Giddens & Gatton Law, PC has attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.