One of the many benefits of filing for bankruptcy is that an automatic stay is imposed that prevents parties from filing a lawsuit against the debtor. If a party ignores the stay and files a civil action against the debtor, the debtor may be able to recover sanctions. The courts will not impose sanctions unless the debtor can demonstrate actual harm, however, as shown in a recent California opinion issued in a bankruptcy case. If you are interested in learning more about the benefits of bankruptcy, it is prudent to meet with a trusted California bankruptcy lawyer to discuss your options.
The History of the Case
It is reported that the debtor filed a petition for Chapter 13 bankruptcy. Pursuant to the bankruptcy code, an automatic stay was entered after he filed his petition. Despite the stay, however, the defendant creditors continued to pursue payments from the debtor. He filed a motion for sanctions, asking the bankruptcy court to penalize the defendants for their violation of the automatic stay. The bankruptcy court denied his motion and his subsequent motion to vacate the order denying his motion. He appealed, and the bankruptcy appellate panel affirmed the bankruptcy court’s ruling. He then appealed to the United States Court of Appeals for the Ninth Circuit.
Sanctions for Violating Bankruptcy Stays
The Court of Appeals was not persuaded by the debtor’s reasoning and affirmed the lower court’s rulings. In doing so, it explained that the standard of review it applied to the bankruptcy appellate court’s ruling was the same as the standard the bankruptcy appellate court applied to the bankruptcy court’s ruling: abuse of discretion.