Courts are split on whether there is power to impose sanctions for violations of the co-debtor stay under Section 1301. Chief Bankruptcy Judge Thad J. Collins of Cedar Rapids, Iowa, decided there is power and imposed sanctions under Section 105(a).
A wife filed a chapter 13 petition, but the husband did not. After the wife’s bankruptcy, the power company got a judgment in small claims court against the non-bankrupt husband for about $2,500 and began garnishing his salary for the debt that both of them owed.
After the order for relief, Section 1301 enjoins any action “to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor,” except in situations not applicable to the case at bar.
Despite being notified twice about the co-debtor stay, the power company continued garnishing. Garnishment only halted when the debtor initiated contempt proceedings in bankruptcy court. In total, the power company garnished almost $900.
The debtor said she missed plan and mortgage payments as a result of the garnishment. Eventually, the power company agreed that the garnishment had been improper and gave the money back.
The debtor nonetheless sought recovery of damages and attorneys’ fees. The power company argued that damages and fees are not recoverable because there is no statutory basis under Section 1301, unlike Section 362.
In his June 26 decision, Judge Collins said the courts are split. Some disallow damages because there is no enabling provision in Section 1301. Other courts award damages under Section 1301, relying on the notion that the co-debtor stay is intended to protect the debtor.
Judge Collins followed courts in a third category that employ Section 105(a) to impose sanctions, finding it “appropriate to carry out and give meaning to Section 1301.” He relied on Section 105 because Section 1301 itself does not authorize damages and Section 362 is inapplicable.
Judge Collins awarded $1,500 for “emotional upset and needless stress” incurred by the husband and wife for being forced to miss mortgage and plan payments. He also awarded $1,400 in attorneys’ fees.