Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
First Bank of Puerto Rico can’t send a debtor in bankruptcy monthly letters about her pre-bankruptcy debt without violating the automatic stay, the U.S. Bankruptcy Court for the District of Puerto Rico held March 17 ( Lugo Ruiz v. First Bank of P.R. (In re Lugo Ruiz) , 2017 BL 84630, Bankr. D.P.R., No. 14-02965 (MCF), 3/17/17 ).
After a bankruptcy petition is filed, the automatic stay under Bankruptcy Code Section 362 protects the property of the bankruptcy estate from being dismantled by creditors piecemeal. The automatic stay gives the debtor breathing room to try to make a fresh start.
Some courts, such as the Seventh Circuit, have held that a creditor’s letter sent to debtor’s counsel may not violate the automatic stay. In this case, however, First Bank sent letters directly to debtor Carmen Ruiz, not her counsel, which ran afoul of it, Judge Mildred Caban Flores said.
The bank “willfully violated the automatic stay in effect in this case” because the letters were sent to “collect … or recover a claim against the debtor that arose before the commencement of the case,” the court said.
Once the bank was aware of the filing of the bankruptcy petition and the automatic stay, “any intentional act that results in a violation of the stay is ‘willful,’” and no specific intent to violate the stay is needed, the court said.
The bank argued that the monthly letters stating the total due and the next payment date were sent to inform Ruiz of her rights under the Servicemembers Civil Relief Act.
The court disagreed with the bank, concluding that there was no reason for it to include the amount of the debt and the next due date in the letters other than to pressure payment.
The bank could have made it clear the letters were intended not to collect a debt but to inform her of her legal rights under the law, the court said.
An evidentiary hearing will be needed to determine whether actual damages, attorneys’ fees, and/or punitive damages should be imposed on First Bank, the court said. Almeida & Davila, PSC represented Ruiz; Godreau & Gonzalez Law represented First Bank Corp.; Martinez & Torres Law Offices PSC represented First Bank Puerto Rico; Osmarie Navarro Martinez, Alejandro Oliveras represented Trustee Alejandro Oliveras Rivera; Monsita Lecaroz Arribas represented Office of the U.S. Trustee.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)