Giving Legal Advice Doesn’t Violate Automatic Bankruptcy Stay

By Diane Davis

A creditor’s attorney didn’t violate the automatic stay in bankruptcy by giving legal advice to the creditor after the debtor’s Chapter 13 plan was approved, the U.S. Bankruptcy Court for the Northern District of California held.

“While the act of providing legal advice may lead to impermissible collection efforts, it does not, in and of itself, violate the automatic stay,” Judge Charles Novack wrote Jan. 30.

There are few cases addressing this issue, and most find that “merely counseling a client does not violate the automatic stay,” the court said.

Bankruptcy Code Section 362(a)(6) stays “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.”

The scope of the automatic stay is broad and plays a vital role in giving a debtor a “breathing spell” from his or her creditors by stopping all collection efforts, harassment, and foreclosure actions.

Section 362(k) allows for the recovery of actual damages, including costs and attorney’s fees, for willful violations of the automatic stay.

Sarah-Jane Parker filed Chapter 13 to stay Bayside Court Owners Association’s claims against her for pre-petition homeowner assessments. She surrendered her interest in her condominium unit, and her Chapter 13 plan was confirmed.

The confirmation of her Chapter 13 plan terminated the automatic stay as to the secured claims against the unit, but Scott Jordan, Bayside’s attorney, asked the court for relief from the automatic stay so it could enforce its lien against her unit and it was granted.

Parker wanted to recover damages for a violation of the automatic stay. According to Parker, Bayside and its attorney violated it by developing a legal strategy where it was able to seize control of her unit while she still owned it and retain the rent, and increase the unit’s liability for common area expenses.

It was undisputed that Jordan knew of Parker’s bankruptcy filing and the automatic stay that applied to creditor’s actions, the court said. Jordan provided on-going legal advice regarding Parker’s bankruptcy and participated to some degree in developing a strategy by which Bayside could recover from Parker’s discharge and failure to pay her assessments.

There was no evidence that Jordan undertook specific actions as agent or litigation counsel that violated the automatic stay, the court said. He provided advice, which Bayside accepted and implemented.

Marlene A. Fong, Fong & Fong PC, Alameda, Calif., represented Parker; Trustee Martha G. Bronitsky represented herself.

The case is In re Parker , 2018 BL 31165, Bankr. N.D. Cal., 14-44083 CN Chapter 13, 1/30/18 .

To contact the reporter on this story: Diane Davis in Washington at ddavis@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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