Punitive Damages and the Bankruptcy Code’s Automatic Stay

For any Oak Park debtors who have recently filed for personal bankruptcy or are considering consumer bankruptcy, it is important to know about punitive damages and the U.S. Bankruptcy Code’s automatic stay. In short, the U.S. Bankruptcy Code says that, in some cases, debtors can receive punitive damages when a creditor intentionally violates the automatic stay. To understand why this is significant, we will tell you more about punitive damages and the automatic stay, and then we will discuss situations in which punitive damages may be awarded for a violation of the automatic stay.
What are Punitive Damages?
Generally speaking, courts recognize two different types of damages awards - compensatory damages and punitive damages. Compensatory damages are those that are supposed to compensate a person for his or her losses, and they are typically characterized as general and special damages. The other type of damages award is known as a punitive damages award. Debtors may be eligible to obtain both compensatory and punitive damages when a debtor violates the automatic stay, but we want to focus on punitive damages.
Punitive damages are different from compensatory damages in that they do not compensate a person for specific losses. Instead, punitive damage are designed to punish another party’s particularly bad or egregious behavior and, most often, to discourage such behavior in the future. In some situations in which a creditor violates the automatic stay, a court may award punitive damages.
Understanding the Automatic Stay and the Award of Punitive Damages
As we mentioned above, the U.S. Bankruptcy Code contains what is known as an automatic stay. This provision is extremely important to debtors because it is what tells creditors that they must stop collecting on debts once a debtor files for bankruptcy protection. It is among the most important parts of the Bankruptcy Code in protecting debtors. In most situations, creditors will adhere to the automatic stay and will not attempt to collect on debts once a person has filed a bankruptcy petition. In some situations, however, debtors do violate the automatic stay and continue to try to collect from a debtor.
In these instances, the Bankruptcy Code states that “an individual injured by any willful violation of a stay provided by this section . . . in appropriate circumstances, may recover punitive damages.” The Bankruptcy Code clarifies that in situations in which a creditor’s violation of the automatic stay is “based on an action taken . . . in good faith,” then damages are limited to actual damages (or compensatory damages). In other words, punitive damages are only awarded in situations in which there is a willful violation.
What constitutes a willful violation? Numerous bankruptcy courts have interpreted this language. For instance, in Crysen/Montenay Energy Co. v. Esselen Associates, the court clarified that when a creditor acts maliciously or in bad faith, then punitive damages are appropriate. How much money is appropriate for punitive damages? The answer to this question is specific to each case. According to the court in In re Curtis, “what would be sufficient to deter one creditor may not even be sufficient to gain notice from another.” As such, “punitive damages must be tailored not only based upon the egregiousness of the violation, but also based upon the particular creditor in violation.”
Contact an Oak Park Bankruptcy Attorney
Is a creditor continuing to contact you even though you filed for bankruptcy? An Oak Park bankruptcy attorney can help you. Contact the Emerson Law Firm today.
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