In re Swindle

Citation: 584 B.R. 259Docket: Case No. 17–18575

Court: United States Bankruptcy Court, N.D. Illinois; February 7, 2018; Us Bankruptcy; United States Bankruptcy Court

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On May 9, 2017, Ebony Lucas filed a motion for possession against Daryl Swindle, the Debtor, on behalf of Parkside Place Condominium Association in state court. Following Swindle's Chapter 13 bankruptcy filing on June 20, 2017, notice was sent to Lucas and Parkside on June 23, 2017. An order of possession was issued the same day but enforcement was stayed until August 24, 2017. Swindle's bankruptcy plan, confirmed on August 7, 2017, included a provision to cure $27,480.00 in pre-petition arrears owed to Parkside.

On October 16, 2017, Lucas emailed Parkside about Swindle's scheduled eviction for the next day, advising not to inform him due to safety concerns for officers. Swindle, alerted by a Parkside board member, contacted his bankruptcy attorney, who indicated that the eviction was prohibited by the automatic stay. This situation caused Swindle significant distress and financial strain as he had to hire subcontractors to manage his work commitments.

Later that day, Swindle's attorney notified Lucas of the bankruptcy and warned that eviction efforts would lead to sanctions for violating the automatic stay. The following day, after noticing a locksmith's presence, Swindle learned from Lucas that the eviction had been canceled. However, on October 19, 2017, Lucas moved for relief from the automatic stay to proceed with the eviction. In response, Swindle filed motions for sanctions against Lucas for her prior actions.

Both motions were heard on October 30, 2017, where Lucas did not appear. The court struck her motion for relief from the automatic stay and granted Swindle's motions for sanctions. Subsequently, Lucas filed a second motion for relief from the automatic stay on November 1, 2017, citing a pre-petition default of $21,000.00 and a post-petition default of $1,200.00.

On November 6, 2017, during a court hearing, the Debtor asserted that he had made post-petition payments to Parkside, bringing himself current. Ms. Lucas acknowledged that the Debtor was up to date on these payments but noted he was behind on pre-petition payments. The Debtor argued that he was permitted by law to address the pre-petition default over the life of his repayment plan. The court subsequently denied Ms. Lucas' second motion for relief from the automatic stay. On November 27, 2017, the court awarded damages to the Debtor and scheduled a hearing for December 11, 2017, to provide proof of damages. Ms. Lucas then moved to vacate this order, leading to an evidentiary hearing on January 8, 2018. During this hearing, Ms. Lucas failed to present any evidence as she did not adhere to court orders regarding prior disclosure. She testified that she became aware of the Debtor's bankruptcy only on July 12, 2017, after which her office notified the Cook County Sheriff's Office to strike the matter from the court call. Ms. Lucas also claimed an error on the part of the Sheriff's office. The court ultimately denied her motion to vacate and granted the Debtor’s motion, awarding him a total of $2,652.74 in damages, which included $1,152.74 for lost income, $500.00 for emotional distress, and $1,000.00 in punitive damages. The automatic stay under 11 U.S.C. § 362 provides a temporary reprieve for the debtor from creditors, halting collection efforts and allowing for the development of a repayment plan, while ensuring equal treatment of creditors. Violations of the stay can lead to recovery of actual and punitive damages under 11 U.S.C. § 362(k)(1).

The automatic stay in bankruptcy serves to centralize the debtor's affairs within a single court, preventing conflicting judgments and aligning creditor interests. It becomes effective immediately upon the filing of a bankruptcy petition, as established in case law. In this instance, the automatic stay was activated on June 20, 2017, when the debtor filed for bankruptcy. An order of possession issued on June 23, 2017, violated this stay by continuing judicial proceedings against the debtor, rendering it void from the effective date of the stay.

Once a bankruptcy petition is filed, the debtor must notify the creditor, after which the creditor is responsible for ensuring compliance with the stay. Ms. Lucas, the creditor's representative, received actual notice of the bankruptcy on June 23, 2017. The court is examining whether she fulfilled her obligation to prevent violations of the stay. The Seventh Circuit mandates that creditors must take corrective actions even without prior notice of the bankruptcy, but Ms. Lucas's situation is distinct because the order of possession was issued post-petition. Thus, she was required to revert to the status quo as of the petition date, which meant no order of possession should have existed.

Despite not having actual notice until June 23, 2017, Ms. Lucas had a duty to rectify the order of possession immediately upon learning of the bankruptcy. She attempted to address the issue by requesting the state court to strike the case and notifying the Cook County Sheriff's Office of the bankruptcy but failed to provide documentation proving that she instructed the Sheriff not to enforce the order.

Ms. Lucas' actions did not constitute a mere technical violation of the automatic stay under 11 U.S.C. § 362. A technical violation occurs when a creditor acts without knowledge of an active bankruptcy case. Courts typically do not impose sanctions for technical violations or when good faith is evident. However, Ms. Lucas failed to prove her good faith, as her initial violation remained unaddressed for four months, and her inaction amounted to a reckless disregard for the stay. Unlike a creditor in a precedent case who paused foreclosure after amending a complaint, Ms. Lucas continued eviction efforts despite knowing about the automatic stay. She did not take timely actions to reverse the eviction order and neglected to notify the Sheriff of the stay even after learning of impending eviction actions. Instead, she assisted the Sheriff in the eviction process, risking the Debtor's status. The court concluded that Ms. Lucas willfully violated the automatic stay due to her failure to act appropriately despite being aware of the bankruptcy proceedings.

Ms. Lucas is found to have willfully violated the automatic stay, prompting the court to assess the Debtor's eligibility for damage recovery under 11 U.S.C. § 362(k)(1). To succeed in this claim, the Debtor must demonstrate that: (a) a bankruptcy petition was filed, (b) he is an individual, (c) the creditor had notice of the petition, (d) the creditor's actions were willful and violated the stay, and (e) the Debtor is entitled to relief under § 362(k). The Debtor filed for Chapter 13 bankruptcy on June 20, 2017, with unsecured debts of $54,836.32, which is below the threshold for eligibility.

Notice of the bankruptcy was sent to Ms. Lucas on June 23, 2017, at her law firm’s address. The court concludes that Ms. Lucas's failure to cease eviction proceedings constitutes a willful violation of the automatic stay. Consequently, the court awards actual damages totaling $1,152.74 to compensate for lost wages incurred over two days due to the eviction threat.

Additionally, the Debtor experienced emotional distress from the urgency of securing housing for his family on short notice, which qualifies for damages under § 362(k)(1) regardless of financial losses, as supported by case law. The Debtor's testimony indicates significant emotional harm tied directly to the violation, satisfying the requirements for emotional distress damages. The court recognizes that Ms. Lucas’s inaction in reversing the order of possession led to both economic and emotional damages for the Debtor.

The court awarded the Debtor a total of $2,652.74, which includes $1,652.74 in actual damages—comprised of $1,152.74 for lost income and $500.00 for emotional distress—and $1,000.00 in punitive damages due to Ms. Lucas' willful violation of the automatic stay. The court found Ms. Lucas' conduct egregious, warranting punitive damages to encourage compliance from her and similar creditors. Factors influencing this decision included the nature of her actions, the harm caused to the Debtor, her ability to pay, her level of sophistication as a creditor's attorney, her motives, and provocation by the Debtor. Ms. Lucas had been aware of the automatic stay for four months but only complied after receiving multiple warnings and Sheriff notice. Her motion to vacate the ruling was denied. The Debtor's attorney may submit a petition for attorney's fees by March 5, 2018, to which Ms. Lucas can respond by March 19, 2018. A status hearing is scheduled for March 26, 2018, at 11:00 am. The court also noted provisions for requesting additional compensation for attorneys in extraordinary circumstances, such as complex litigation or extended hearings, applicable in this case.