Ninth Circuit Rules on Debtor’s Ability to 
Recover Reasonable Attorney’s Fees for Stay Violations

On October 14, 2015, the Ninth Circuit Court of Appeals (the “Court”) issued an opinion that addressed the timeframe for which debtors in bankruptcy can recover attorney’s fees for seeking damages for violations of the automatic stay. In a previous case, Sternberg v. Johnston, the Court held that a debtor may only recover fees incurred to end a violation of the automatic stay; not the attorney’s fees incurred during the prosecution of a lawsuit to recover damages past that point.

In re Schwartz-Tallard

In re Schwartz-Tallard overruled Sternberg with regard to its holding that a debtor may not recover attorney’s fees for prosecution of stay violations after termination of the stay violation. In In re Schwartz-Tallard, the Court held that a debtor may recover reasonable attorney’s fees incurred during prosecution of a lawsuit for damages as a result of a creditor’s violation of the automatic stay, and such recovery is not limited by the end of the stay violation.

The Issue

Upon the filing of a bankruptcy petition, the Bankruptcy Code imposes an automatic stay on virtually all actions against the debtor for pre-filing debts. When a creditor violates the automatic stay by taking action to collect pre-petition debts after a bankruptcy case is filed, debtors may sue for damages, including attorney’s fees. In Sternberg, the Court held that debtors may not recover fees incurred to prosecute such a violation after the stay violation ends. The Schwartz-Tallard Court held, however, that the Bankruptcy Code authorizes an award of reasonable attorney’s fees incurred in prosecuting an action for damages, including after the stay violation.

The Facts

In Schwartz-Tallard, the debtor was current on her mortgage payments when she filed a chapter 13 bankruptcy case. America’s Servicing Company (the “Lender”) wrongly foreclosed on her home and served the debtor with an eviction notice, causing her to seek damages from the bankruptcy court for the Lender’s violation of the automatic stay. The bankruptcy court awarded the debtor economic damages, emotional distress damages, punitive damages, attorney’s fees, and also ordered the Lender to reconvey title of the property to the debtor. As a result of the Sternberg case, however, the bankruptcy court only awarded attorney’s fees through the end of the stay violation by the Lender. The debtor appealed this holding.

If you are a debtor in bankruptcy or need to file bankruptcy in the future, be aware of your rights against creditors who may take actions in violation of the Bankruptcy Code’s automatic stay provision. The attorneys at Schwartz Flansburg can help enforce your rights against such creditors.

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