Violation of Automatic Stay

In The Johnson v. Smith case, the bankruptcy court awarded debtors approximately $6,000 in damages and attorneys’ fees based upon a car dealership’s willful violation of the automatic stay in repossessing and retaining their vehicle that was the collateral for the secured loan.

During the pendency of the car dealership’s appeal of the Bankruptcy Court’s ruling, the debtor’s chapter 13 proceeding was dismissed for failure to timely make the plan payments.

The Tenth Circuit bankruptcy appellate panel held that debtors’ action for willful violation of the automatic stay survived the dismissal of the underlying bankruptcy case.  In doing so, the Court looked to the “core” nature of a stay violation proceeding as belonging solely in Bankruptcy Court, as well as public policy considerations in punishing violations of the Bankruptcy Code.  The Court also found similar decisions from other courts to be persuasive on the issue.