The bankruptcy automatic stay is one of the most fundamental protections provided to a debtor in a bankruptcy case. It is not, then, surprising that bankruptcy courts take a very dim view of creditors who ignore the protections granted to a debtor after the filing of a case. The bankruptcy code permits a debtor to recover damages for violations of the automatic stay; those provisions are contained in 11 U.S.C. §105(a) and 11 U.S.C. §362(k).

Section 105(a) allows the bankruptcy court to enforce its orders by using contempt proceedings. The automatic stay is considered to be in effect through a court order, so that violations would be covered under this provision. However, Section 362(k) is more specific and more commonly used. It creates a separate right to damages for parties affected by a creditor’s violation of the automatic stay.

So, while an aggrieved debtor may proceed under either section, it will usually make more sense to use Section 362(k) for most consumer purposes. Section 362(k) permits punitive damages; it requires a less strict standard than 105(a); it has simpler noticing requirements; and it is a core proceeding, so that it can be heard and decided by the bankruptcy court. See In Re Johnson, 390 B.R. 414 (10th Cir. B.A.P. 2008).

To prevail in an action under Section 362(k), the following elements must be shown:

• 1. The debtor must be an individual.
• 2. The offending person or entity must have violated at least one provision of 11 U.S.C. §362 (the automatic stay provision imposed by the court).
• 3. The violation of the automatic stay must have been “willful.”
• 4. The person seeking relief must have been injured in some way, and have incurred damages as a result of the violation.

While the term “individual” normally refers to persons, there is a dispute of authority whether businesses or corporations may recover under Section 362(k). Some circuits limit automatic stay violations actions under 362(k) to persons; some circuits take the position that businesses also may pursue damages for stay violations under 362(k).

Even if a business were not eligible to proceed under 362(k), it would still be able to pursue damages for an automatic stay violation under another section of the Code. Many courts also hold that a trustee qualifies as an “individual” under Section 362(k); but there are some decisions that have gone the other way. See, e.g., In Re Pace, 67 F.3d 187 (9th Cir. 1995).

The debtor must also show that the actions of the creditor fall under at least one provisions of the automatic stay as laid out in Section 362. If a case has been closed or dismissed, then the automatic stay terminates, and damages might not be allowed. A creditor who tries to collect or enforce a nondischargeable debt must still, however, obtain stay relief from the court before undertaking such actions. In actual practice, technical violations of the automatic stay happen all the time in bankruptcy cases.

Letters are sent to debtors; phone calls are made to them; they are contacted when represented by counsel, and other similar things happen with some frequency. However, such de minimis violations rarely rise to the level of causing actionable harm to a debtor. Some actions do cause harm: an attempt to enforce a prepetition judgment; an attempt to obtain, create, or perfect a lien on bankruptcy estate property; or a setoff of a prepetition debt owed by a debtor can cause actual harm.

The “setoff” game is a very common tactic of banks and other financial institutions. What normally happens is that a debtor will file a case, and then at some point during the case, the creditor will try to debit, deduct, or setoff the debt with some other monies available to it from some other account. Similar games are often played by credit unions with “cross collateralized” loan structures. This type of conduct is not permitted. It is a defense to a creditor to say that it was relying on the advice of counsel in its actions. Even the belief that a creditor was acting in good faith is not a defense. In Re Radcliffe, 563 F.3d 627 (7th Cir. 2009).

A debtor must show some injury as a result of the creditor conduct. There must be some way to quantify the damages, even if they are small. Section 362(k) permits the recovery of actual damages, as well as costs and attorney fees. Damages here can come in many forms: lost wages, improper setoffs, liens improperly attached, garnishments improperly taken, and even emotional damages if such can be properly quantified. Even punitive damages are permitted if the creditor conduct is malicious, oppressive, egregious, or in bad faith.

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