The Automatic Stay Violation Law Niche

It is an arcane area of the law, and admittedly it is one area about which I have not much written.  Maybe it is because I might be a bit protective in that this is the area of law in which I practice -- in which I have pioneered in fact.  But, the truth of the matter is I have encourage countless attorneys over the years, with little success, to consider this legal niche as a full time practice.

The practice concerns one particular provision of the Bankruptcy Code - 11 U.S.C. § 362.  This is the automatic stay provision of the Code.  In other words, it represents an injunction issued upon filing of most bankruptcies, which prohibits creditors and others from undertaking collection action against the debtor and against property of the bankruptcy estate.

The automatic stay is born of two parents really.  The mother is federal injunction law.  The father is federal fee-shifting law, or what is commonly referred to as "private attorneys general" statutes.  The mother is the automatic stay provisions of 11 U.S.C. § 362(a). The father is the enforcement provision of 11 U.S.C. § 362(k)(1).  (Before bankruptcy reform, this provision was known as 11 U.S.C. § 362(h), which still applies to all cases filed before the enactment of BAPCPA).

The purpose of the automatic stay is to tell creditors and others what they cannot do after a bankruptcy is filed. So, somebody or some entity is suppose to read § 362(a) to determine what is prohibited, and then § 362(b) to see if there is an exception.  In most consumer situations there is not an exception.  Then if one of the proscribed acts is committed, the automatic stay is violated.  It is really that simple.  And, the automatic stay is violated whether the violator knew of the bankruptcy or not.

The question is whether the violation is compensable?  In other words, the question is whether the person or company or entity violating the stay has to pay someone for the damages, including all attorneys' fees and costs incurred in litigating the violation?

This question is answered by § 362(k), which allowed an individual injured by the automatic stay to recover all damages, including attorneys' fees and costs, and the possibility of punitive damages, if the violation is "willful".

Understanding that the terms injury and individual are simply standing issues, all United States Circuit Courts of Appeal have answered in some version what constitutes strict liability under § 362(k)(1).  Although the language varies to some extent, the four basic things that must be proved to recover are: (1) that the automatic stay was in place when the violation occurred; (2) that the person, company or entity violating the stay knew of the existence of the bankruptcy either when it violated the stay, or failed to immediately remedy the violation after learning of the bankruptcy; (3) that the automatic stay was violated; and, (4) that the violator intended the action in which it engaged.  (In other words, it does not matter if the violator intended to violate the automatic stay, and all that matters is that the violator intended the action it undertook, such as sending out a demand letter, repossessing a car, or filing or continuing with a lawsuit against either the debtor or the property of the bankruptcy estate).

What is important to remember is that there is no good faith defense that can be raised as to a willful violation, with the exception of an inability to comply with the automatic stay that goes beyond a mere allegation of inability.  This defense can almost never be met as it has to be specific and fact intensive, and most automated processes do not meet this standard.

It is becoming pretty clear in all jurisdictions that creditors can also bring a cause of action against a violator for violating the stay under § 362(k)(1), if that creditor is an individual.  It is unlikely that a trust, trustee, corporation, partnership or other entity can bring such an action under § 362(k)(1).  But, these parties can bring a cause of action under the Court's equitable powers contained in 11 U.S.C. § 105.

Although it is unlikely that you are going to retire or get rich off of the typical violation, my point is that proving up a violation is not overly difficult because most of the time the violation can be proved from the objective facts and notices contained in the bankruptcy court's own file.  And, all such records are viewable online.

What makes the practice niche generally enjoyable from a practice building standpoint is that the referral sources are readily identifiable and reachable.  The referral sources are by and large bankruptcy attorneys.  These attorneys generally are not set up to prosecute these matters, and many times because of the notice requirements the attorneys are prohibited or discouraged from bringing these actions on behalf of their clients under the lawyer-witness rule.  This means simply that the bankruptcy attorneys or the law firms are witnesses in the case, as to an essential element to be proved, and they are generally not allowed to be both the attorney and a witness in the case.

Because the clients are generally referred by the bankruptcy attorneys, and the claim can generally be researched fully from the notes of the bankruptcy attorney and the court records online, you generally do not have to meet with a client in person, unless the matter goes to trial.  This is not to say there is not client contact, but it is almost always online and over the telephone.  Like all litigation, most cases settle if you and your client are reasonable.  If an in-person meeting is necessary on occasion for trial or discovery, I just use the courthouse or the bankruptcy attorneys' office.

Because of the work at home and low overhead possibilities, and the need to forgo most in-person consults (as most creditor also do attorneys do by the way), and the limited number of bankruptcy courts or locations in a state, you can generally cover the entire state in which you practice.  This reach increases your ability to obtain enough referrals to make a living.

My firm's practice site is StayViolation.Com.  Although there are attorneys in this country that bring a few of these cases each year, as part of their bankruptcy practice, I am not aware of any other group of attorneys that limit their practice to this practice niche with the exception of my law firm.  This means, of course, that the referral sources are not being overwhelmed by offers to help them.

It is a practice niche that might be worth pursuing.

Okay, I am still a little protective, and I would prefer that you stay out of Texas and Arizona, the two states in which my virtual law firm practices in this area.  But, if you are in the rest of the country, you might want to consider this niche.

. . . And, if you become aware of a stay violation in another jurisdiction in which I might of help, and in which you are licensed, I am more than willing to accept that referral and work with you in preparation of the court appearances you will have to make, if any.

Comments

[fbc]

Excellent, Chuck. I do this same type of work but don't specialize in this one area. Would definitely like to do more of it, though.

(And I'll stay outta Baja Oklahoma, too!) ;^)

Ben Callicoat
http://tulsabankruptcyandconsumerlaw.blogspot.com

[Andrew Svitek]

How susceptible is this type of practice to regulatory changes? That would be my concern with narrowing one's focus too greatly. In the land use regulatory area in which I practice, there is a constant battle between the regulators and property owners and the pendulum shifts from one year to the next (especially in areas like signage, wineries, telecom towers, energy facilities). In Oregon, there was a takings voter initiative passed over to be repealed several years later with another voter initiative. That's not even addressing what goes on at the local level. What cases get filed and how they will fare really depends on timing. As we know real estate development has a long time frame and is cyclical. Does this mean you keep changing a niche, or you make your niche broad enough (but harder to market) to withstand these regulatory changes (being a lawyer for the "opposition", for instance)?

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