Sixth Circuit Files Win for Bankruptcy Debtors Harassed During Automatic Stay
Creditors of bankruptcy debtors beware: a recent opinion from the Sixth Circuit Court of Appeals makes clear that creditors cannot circumvent the ban on collection efforts following the petition for bankruptcy by trying to pursue the debtor criminally, rather than civilly. According to the panel in Weary v. Poteat, No. 15-5159 (6th Cir. Sept. 30, 2015), creditors cannot do this where the collection efforts seem more for the purposes of harassment than true efforts at criminal prosecution.
When a debtor files for bankruptcy, an automatic stay of collection effort under 11 U.S.C. § 362(a) goes into effect. Stephanie Poteat filed for bankruptcy in April 2013, one month after her former landlord filed a civil action against her to recover for unpaid rent. Despite the automatic stay, the landlord sent Poteat’s bankruptcy attorney and Poteat’s mother (who was a reference on her daughter’s lease agreement) letters expressing his intention to pursue criminal charges against Poteat which, the landlord intimated, would be more expensive for her in the long run.
Poteat promptly moved the bankruptcy court to hold the landlord in contempt for violating the automatic stay. The landlord defended his actions by invoking 11 U.S.C. § 362(b)(1), which exempts “the commencement or continuation of a criminal action or proceeding against the debtor” from the application of the automatic stay. The landlord insisted that his letter only communicated his intention to pursue criminal prosecution. The bankruptcy court—and the Sixth Circuit—disagreed, finding that the “spirit and motivation” behind the letters demonstrated the landlord’s intent to harass Poteat and coerce her into paying the debt. The bankruptcy court imposed punitive damages against the landlord in the amount of $7500.
In addition, the Sixth Circuit was unimpressed by the landlord’s argument that this punishment chilled his First Amendment right to petition for redress of grievances. The landlord was certainly not restrained from working with local prosecutors to pursue a criminal remedy—but that was not what he had done. Rather, as a creditor, he had communicated a threat to a debtor, based on the possibility of criminal prosecution, in order to obtain payment.
Creditors (and their attorneys) should take notice: civil collection efforts are civil collection efforts, no matter how they are dressed up. Simply referencing criminal charges in a civil collection effort that follows bankruptcy filing will not take the collection out of the automatic stay.