Page 14 - John Hundley 2011

In In re Russell, 441 B.R. 859 (Bankr. N.D. Ohio 2010), recon. denied, 2011 WL 1500595 (Bankr.
N.D. Ohio 2011), the court held that a garnishing creditor’s attorney had an “absolute” duty to cause a
wage garnishment to be discontinued upon learning that it was being
continued after the bankruptcy filing. Rejecting claims that counsel didn’t
intend to harm the debtor, the court said the “scope of the stay is broad
and operates to enjoin essentially any act, whether the
commencement or continuation thereof, … to collect on a
prepetition claim.”

Somewhat similarly, in In re Hardesty, 442 B.R. 110 (Bankr. N.D. Ohio
2010), the same judge found that merely conducting an appraisal, when
performed in connection with a state court foreclosure action, violated the
stay. The court said the appraisal “violated the automatic stay, as it was
done for one purpose: to enable the Defendant to recover on its prepetition claim.” Moreover, quoting
In re Johnson, 262 B.R. 831 (Bankr. D. Id. 2001), the court said, “Creditors must take the necessary
steps to halt or reverse any pending State Court actions or other collection efforts commenced prior
to the filing of a bankruptcy petition.”

These cases demonstrate several principles. First, while called a
“stay”, § 362(a) sometimes requires more than that the creditor do
nothing. Sometimes, it requires the creditor to undo steps taken prior to
the bankruptcy petition – even when those steps were perfectly lawful
when taken.

Second, these cases demonstrate that sometimes creditors can be
held liable for conduct of third parties. In Hardesty, for example, the
appraisal was done by independent personnel; in Russell the withholding
was done by the employer. However, when such third parties are acting
as part of a course of action which the creditor set in motion, the creditor may be held liable unless it
takes reasonable affirmative steps to stop the third party’s action.

Third, these cases demonstrate courts will reject pleas of innocence as to
the alleged effect or intent if the ultimate purpose of the underlying action is
enforcement of a claim. While lack of short-term effect (such as obtaining a
continuance or having an appraisal conducted) may impact the amount of
damages to be assessed as a result of the stay violation, bankruptcy courts
do not look with favor on “no harm, no foul” defenses on the question of a
stay violation.

In short, the bankruptcy stay is not just a “yield” sign, and sometimes it’s
not just a “stop” sign. In some circumstances it can be a command to turn
around and go backwards.

John\SharpThinking\#47a.doc

●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●●
THE SHARP LAW FIRM, P.C.

1115 Harrison, P.O. Box 906, Mt. Vernon, IL 62864 • Telephone 618-242-0246 • Facsimile 618-242-1170

Business Transactions • Litigation • Financial Law • Problem Finances • Real Estate • Corporate • Commercial Disputes • Creditors’ Rights •
Arbitration • Employment Matters • Estate Planning • Probate

Terry Sharp: law@lotsharp.com; John T. Hundley: Jhundley@lotsharp.com; Bentley J. Bender: Bbender@lotsharp.com.

Advertising Material