Creditor Sanctioned for Violating Ch. 13 Co-Debtor Stay

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By Daniel Gill

A creditor had to pay a Chapter 13 debtor damages for violating an injunction prohibiting collections against co-debtors, an Iowa bankruptcy judge ordered June 26 ( In re Tucker , Bankr. N.D. Iowa, Bankruptcy No. 16-01127 Chapter 13, 6/26/17 ).

Noting a split of authority among courts considering the question, Chief Judge Thad J. Collins of the U.S. Bankruptcy Court for the Northern District of Iowa found that Section 105 of the bankruptcy code authorized him to order the sanctions, and the creditor’s actions in the case warranted the order against it.

On Aug. 30, 2016, Misty Tucker filed a Chapter 13 bankruptcy petition. Chapter 13 allows individuals receiving regular income to obtain debt relief while retaining their property. To do so, the debtor must propose a plan that uses future income to repay all or a portion of his debts over a three- to five-year period.

One of the protections afforded debtors is an “automatic stay,” an order prohibiting creditors from collecting on their debts without first getting court permission. A creditor violating that stay—created by 11 U.S.C. §362—may be subject to sanctions and other penalties.

In Chapter 13, there is also a stay against collecting from “any individual that is liable on such debt with the debtor,” under 11 U.S.C. §1301.

After Tucker filed for bankruptcy, creditor Heartland Power Cooperative won a small claims judgment against her husband, Roger, and started garnishing his wages. It continued to do so even after her attorney notified the company that it was violating the co-debtor stay of Section 1301.

Roger Tucker was a co-debtor even though it was his wife who sought bankruptcy protection.

Where Section 362 of the code says that a creditor violating the automatic stay may be subject to sanctions, Section 1301—the co-debtor stay section—is silent as to whether a violation can be the cause for an order for damages.

Some courts have found that damages can’t be awarded for a breach of Section 1301, while others say they can.

The court sided with those courts that said that Section 105 gives the court the power to award sanctions in order to “carry out and give meaning” to Section 1301.

Because the creditor ignored counsel’s warnings about the violations and demands to cease collecting against the co-debtor spouse, the creditor harmed the debtor, and sanctions were appropriate, it said.

It ordered the creditor to return all the wages it had garnished from Roger Tucker and awarded $1,500 for “emotional upset and needless stress, $1,400 for attorney fees, and $1,500 “in additional damages.”

Misty Tucker was represented by Kevin D. Ahrenholz, Waterloo, Iowa. Heartland was represented by David J. Hellstern, West Des Moines, Iowa.

To contact the reporter on this story: Daniel Gill in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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