Bankruptcy: Punitive Damages - Failure to Return Vehicle

     Judge Tice of the United States Bankruptcy Court, in Richmond, in the case of Brown v. Town & Country Sales and Service, Inc., ruled that a creditor that repeatedly refused to give the debtors’ pickup truck back to the debtors, despite the debtors’ entitlement to the truck after they filed for bankruptcy, violated the automatic stay in bankruptcy and must pay debtors’ attorney’s fees and punitive damages. 

     The creditor’s registered agent testified at trial that, despite the fact that they had always returned repossessed property post-petition in the past, the creditor elected not to return debtors’ vehicle. Instead, she testified that this time the creditor decided it would not return debtors’ vehicle upon demand because the creditor was unhappy that a large number of its customers had declared bankruptcy in the past year. 

     The debtors provided the lender with proof of adequate insurance. The debtors were currently awaiting confirmation of their modified Chapter 13 plan in which the debtors proposed to pay the lender in full. The debtors owed the lender $1,689.02 for the initial truck loan, as well as $1,764.95 for the replacement motor, for a total of $3,453.97.

     The Court concluded that the creditor’s demand for full payment, coupled with its inaction and retention of the vehicle, amount to an exercise of control sufficient to find a violation of the automatic stay for failure to turn over the vehicle pursuant to Bankruptcy Code §542(a). The Bankruptcy Court ruled that the debtors were entitled to recover the truck upon filing bankruptcy. Thus, the creditor’s retention of the vehicle post-petition constituted an exercise of control in violation of the automatic stay and Bankruptcy Code §362(h), which permits a court to impose attorney’s fees, costs and punitive damages for a willful violation of the automatic stay. The Court awarded these.

     The Bankruptcy Court further awarded punitive damages against the creditor in the form of cancellation of both of the creditor’s security interests against debtors’ vehicle. Any balance which debtors owed the creditor was treated as an unsecured claim.

    The lesson in Brown - know the rules and always consult experienced counsel. 

Bankruptcy: Punitive Damages - Failure to Return Vehicle

     Judge Tice of the United States Bankruptcy Court, in Richmond, in the case of Brown v. Town & Country Sales and Service, Inc., ruled that a creditor that repeatedly refused to give the debtors’ pickup truck back to the debtors, despite the debtors’ entitlement to the truck after they filed for bankruptcy, violated the automatic stay in bankruptcy and must pay debtors’ attorney’s fees and punitive damages. 

     The creditor’s registered agent testified at trial that, despite the fact that they had always returned repossessed property post-petition in the past, the creditor elected not to return debtors’ vehicle. Instead, she testified that this time the creditor decided it would not return debtors’ vehicle upon demand because the creditor was unhappy that a large number of its customers had declared bankruptcy in the past year. 

     The debtors provided the lender with proof of adequate insurance. The debtors were currently awaiting confirmation of their modified Chapter 13 plan in which the debtors proposed to pay the lender in full. The debtors owed the lender $1,689.02 for the initial truck loan, as well as $1,764.95 for the replacement motor, for a total of $3,453.97. 

     The Court concluded that the creditor’s demand for full payment, coupled with its inaction and retention of the vehicle, amount to an exercise of control sufficient to find a violation of the automatic stay for failure to turn over the vehicle pursuant to Bankruptcy Code §542(a). The Bankruptcy Court ruled that the debtors were entitled to recover the truck upon filing bankruptcy. Thus, the creditor’s retention of the vehicle post-petition constituted an exercise of control in violation of the automatic stay and Bankruptcy Code §362(h), which permits a court to impose attorney’s fees, costs and punitive damages for a willful violation of the automatic stay. The Court awarded these. 

   The Bankruptcy Court further awarded punitive damages against the creditor in the form of cancellation of both of the creditor’s security interests against debtors’ vehicle. Any balance which debtors owed the creditor was treated as an unsecured claim. 

   The lesson in Brown - know the rules and always consult experienced counsel.

Bankruptcy: Denial of Discharge/Failure to Maintain Records

     The United States Bankruptcy Court at Richmond, in Lubman v. Hall, refused to grant a discharge because the debtors refused to keep records required by the trustee and failed to cooperate with the trustee as required by Bankruptcy Code §521(3) and Rule 4005 of the Federal Rules of Civil Procedure. 

     The Court found that the debtors, a U.S. Postal Service computer programmer and a secretary, refused to comply with the trustee's request that they file income tax returns for the previous years, claiming that they were not required to file such returns. The Court ruled, however, that the debtors had a duty to preserve those records which others in like circumstances would ordinarily keep. The basis for the duty was the necessity for the trustee to be able to fully determine the debtors' financial condition. 

     This decision can be used by creditors in all cases - check the debtor's bankruptcy petition for important missing information and bring this to the trustee's attention. 

Foreclosure: Default

    Question: When is a loan in default? Answer: Under one or more of several circumstances. The most common way that a borrower is in default is monetary – e.g., the borrower fails to make a required payment. However, default can be for a non-monetary reason as well, such as: 

    1. Failure to pay taxes. 

    2. Failure to pay insurance. 

    3. Failure to remove or bond over mechanic’s liens. 

    4. Failure to perform requirements unique to the loan. 

    If you have questions about default, please call Eddie at 545-6251.

Collections: Sanctions on Improper Fair Debt Claim

       In the case of Guidry v. Clare, a United States District Court in Northern Virginia granted an award of $16,000.00 in sanctions against a debtor who was a plaintiff in a Fair Debt Practices Collection Act (FDCPA). The Court held that the debtor’s case, which also included state law claims of intentional infliction of emotional distress, malicious prosecution and false imprisonment, was filed wholly without merit. 

     The Court found that the dispute arose when the debtor wrote the plaintiff, a company that provided cheerleading training, a check for $62.50 for the debtor’s daughter’s class. The check was returned for insufficient funds. The company’s office manager (Clare) contacted the debtor to make the check good. The debtor did not respond. Over the next several months the company made several other efforts to collect on the check, including a letter from the company’s attorney and from a collection agency. The company’s office manager also advised the debtor that the company would seek a warrant for the debtor’s arrest if the debt was not paid within seventy two hours. When the debtor did not respond, the company filed a criminal complaint for misdemeanor larceny by check. A few days later, a policeman served the warrant on the debtor at the same time he served a warrant from another creditor for felony larceny by check. The debtor was arrested and released on her own recognizance on both charges. She paid the face amount of the company’s check, plus a $30.00 bank service charge. As a result of this, the prosecutor withdrew the bad check charge. 

     A few months later the debtor filed her FDCPA action. After much litigation, the case was dismissed, without prejudice, because the case was not served within 120 days. The complaint was refiled. The company’s attorneys sought dismissal and sanctions for filing a frivolous lawsuit. The Court dismissed the case, scheduled a hearing on sanctions, and ordered the parties to prepare briefs. After reviewing the briefs the Court concluded that the debtor’s case was “meritless, indeed flatly frivolous”. The meritless claims included allegations that the company’s manager had failed to make a meaningful disclosure of her identity and debt collection purpose in her telephone calls to the debtor, that a debt collector was barred from filing a criminal complaint, that the company’s manager had made false representations to authorities in order to disgrace the debtor, and that the collection letters failed to disclose their debt collection purpose. The Court ruled that the letters contained the required disclosures and the purpose of the phone calls were clear. The Court further ruled that the law prohibits only the threat of criminal action if there is no intent to follow through on the threat. In this case the intent to follow through was evident from the fact that a warrant was issued, and there was no evidence that the representations to authorities were false or made with an intent to disgrace the debtor. The Court found that there was also no basis for the state law claims of intentional infliction of emotional distress, malicious prosecution and false imprisonment. The Court wrote that “it cannot be forgotten or overlooked” that the case “was spawned by Guidry’s failure to pay a $62.50 debt, or rather by her attempt to pay it with a bad check”. 

     Creditors take heart - there is still some common sense in this world!

Real Estate: The Virginia Property Owners' Association Act - Foreclosing on Memorandums of Lien

       In a previous blog, I discussed the provisions related to filing a memorandum of lien under the Virginia Property Owners’ Association Act.

     The Act provides: “At any time after perfecting the lien pursuant to this section, the property owners' association may sell the lot at public sale, subject to prior liens.” In order to conduct a nonjudicial foreclosure, the association must comply with the statutory requirements.
     The association must give notice to the lot owner prior to advertising the sale. The notice must include notice of: “(i) the debt secured by the perfected lien; (ii) the action required to satisfy the debt secured by the perfected lien; (iii) the date, not less than 60 days from the date the notice is given to the lot owner, by which the debt secured by the lien must be satisfied; and (iv) that failure to satisfy the debt secured by the lien on or before the date specified in the notice may result in the sale of the lot.” The notice must also inform the lot owner of the right to bring a court action in the circuit court of the county or city where the lot is located to assert the nonexistence of a debt or any other defense of the lot owner to the sale.
     If the lot owner (i) satisfies the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees, then the sale is discontinued. However, if after 60 days and the lot owner has not made those payments, the association may appoint a trustee for the sale and advertise the sale. In addition to advertising the sale, the association must give written notice of the time, date and place of any proposed sale in execution of the lien, and including the name, address and telephone number of the trustee. That notice must be at least given to the owner, lienholders and their assigns by certified or registered mail 14 days prior to the sale.
     The association must advertise the sale in a newspaper in the city or county where the property will be sold. The advertisement must be in a section with legal notices or where the property being sold is generally advertised for sale. The advertisement must describe the property by address and general location and have information for the representative or an attorney who can respond to inquiries about the property with their name, address, and telephone number. The advertisement must be in the newspaper for four successive weeks, but if the lot is located in a city or county immediately contiguous to a city, publication of the advertisement for five different days is sufficient. The sale then must be held on any day after the last advertisement but not earlier than 8 days after the first advertisement and not more than 30 days after the last advertisement.
     Failure to comply with these and other requirements in the statute will render the sale of the property voidable by the court. The law firm of Lafayette, Ayers & Whitlock, PLC, represents homeowner’s associations and can handle memorandums of lien and foreclosure procedures.