The automatic stay contained in Bankruptcy Code Section 362(a) is fundamental to the effectiveness of the consumer bankruptcy system. Most creditors observe the automatic stay, and refrain from engaging in   debt collection activity after a bankruptcy petition has been filed. If there is a doubt as to the applicability of the automatic stay, then a creditor can obtain a comfort order as to the applicability of the automatic stay, or obtain relief from the automatic stay from the Bankruptcy Court. Nevertheless, there are some minute instances in which some creditors have acted in derogation of the automatic stay and they have continued with their debt collection activity after receiving actual notice of the commencement of a bankruptcy case. In certain limited instances, some creditors have committed egregious violations of the automatic stay to warrant the imposition of punitive damages, not only to compensate the victim but also to vindicate the consumer bankruptcy system. Bankruptcy Code Section 362(k) authorizes the imposition of punitive damages for a willful violation of the automatic stay. In re Velichko , 473 B.R. 64, 68 (Bankr. S.D.N.Y. 2012); 11 U.S.C. § 362(k). A finding of maliciousness or bad faith on the part of the offending creditor warrants the imposition of punitive damages. Crysen/Montenay Energy v. Esselen Assoc (Crysen/Montenay Energy Co.) , 902 F.2d 1098, 1105 (2 nd Cir. 1990). The primary purposes of an award of punitive damages for a willful violation of the automatic stay are punishment and deterrence.  In re Rackowski, 2011 WL 7069457 *4 (Bankr. S.D.N.Y. 2011); In re Lukach , 2007 WL 1365436 *7 (Bankr. E.D.N.Y. 2007). U.S. Bankruptcy Court Chief Judge Carla E. Craig of the Eastern District of New York has stated:

The primary purpose of punitive damages awarded for a willful violation of the automatic stay is to cause a change in the creditor's behavior....' ” In re Panek, 402 B.R. 71, 77 (Bankr.D.Mass.2009) (quoting In re Shade, 261 B.R. 213, 216 (Bankr.C.D.Ill.2001)). The Second Circuit has stated that the punitive damages standard imposed by § 362(k) “encourages would-be violators to obtain declaratory judgments before seeking to vindicate their interests in violation of an automatic stay....” Crysen/Montenay Energy Co., 902 F.2d at 1105. In other words, “Parties may not make their own private determination of the scope of the automatic stay without consequence.”

In re Jean-Francois , 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015).

Amount of Award Is Fact-Specific

The amount of a punitive damage award is fact-specific and within the discretion of a Bankruptcy Court. Curtis v. LaSalle National Bank (In re Curtis) , 322 B.R. 470, 486 (Bankr. D.Mass. 2005). The following comments have been made about the importance of tailoring the punitive damage award to the conduct of a particular creditor:

What would be sufficient to deter one creditor may not even be sufficient to gain notice from another. Punitive damages must be tailored not only based upon the egregiousness of the violation, but also based upon the particular creditor in violation.

Curtis v. LaSalle National Bank (In re Curtis) , 322 B.R. 470, 486 (Bankr. D.Mass. 2005). Courts have imposed punitive damages for arrogant defiance of the automatic stay. E.g. ,  In re Jean-Francois , 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015); , Diviney v. NationsBank of Texas (In re Diviney) , 211 B.R. 951 (Bankr. N.D.Okla. 1997). I n determining whether to impose punitive damages under Bankruptcy Code Section 362(k), several bankruptcy courts have identified five factors to guide their decision. They are the nature of the creditor's conduct, the creditor's ability to pay, the motives of the creditor, any provocation by the debtor, and the creditor's level of sophistication: In re Jean-Francois , 532 B.R. 449, 459 (Bankr. E.D.N.Y. 2015).   A germane case in which punitive damages were awarded for a willful violation of the automatic stay is In re Jean-Francois , 532 B.R. 449 (Bankr. E.D.N.Y. 2015). The court did not award any compensatory damages because the debtor failed to sustain his burden of proof on the issue of actual damages. Craig, however, awarded $50,000.00 in punitive damages for an egregious violation of the automatic stay. The creditor conducted a post-petition eviction without obtaining relief from the automatic stay. The court stated:

In assessing the damages appropriate to deter future conduct by Church Avenue, it should be noted that Church Avenue learned of the bankruptcy filing on Sept. 3, 2013, at the latest, yet went ahead with the eviction of the debtor from the building on Sept. 16 without seeking relief from the automatic stay. Moreover, Church Avenue never sought stay relief to authorize it to exclude the debtor from the building after Sept. 16, 2013, and offered Mr. Davidovics patently incredible testimony that the locks were never changed in an effort to avoid responsibility for this ongoing stay violation. The fact that Church Avenue pursued the eviction more than a week after it learned of the debtor's bankruptcy suggests that Church Avenue either made its own—incorrect—legal conclusion with respect to whether the eviction would be a stay violation, or decided that moving ahead to empty the building quickly and evict the occupants was worth more to it than the risk associated with defending a future § 362(k) motion.

Id. at 460. A $50,000.00 punitive damages award was necessary to deter future violations by the creditor. Similarly, in In re Velichko, 473 B.R. 64 (Bankr. S.D.N.Y. 2012) the creditor, a federal credit union, had repossessed the debtor's automobile prior to the commencement of the bankruptcy case. The creditor refused to turn over the vehicle after having notice of the commencement of the bankruptcy case. The creditor failed to obtain a comfort order concerning the applicability of the automatic stay. U.S. Bankruptcy Chief Judge Cecelia G. Morris of the Southern District of New York issued punitive damages against the creditor. The creditor greatly inconvenienced the debtors by depriving them of the use of their minivan. Morris stated:

Here it is the creditor, not the debtors, who acted in bad faith by retaining property of the estate unlawfully and then conditioning its release upon the signing of a reaffirmation agreement and the collection of prepetition arrears despite the imposition of the automatic stay. If Quorum believed that it was entitled to lawfully retain the vehicle it should have sought permission of this court to do so. Id. at 69.

Another pertinent case in which punitive damages were awarded is Henry v. Associates Home Equity Services . (In re Henry) , 266 B.R. 457 (Bankr. C.D.Cal. 2001). In awarding punitive damages the court stated:

In late 1997 and 1998 Associates had no effective policy to assure that its collection personnel complied with either the automatic stay or the discharge injunction. Associates had no standard procedure during this time for entering information into a customer's account or bringing it to the attention of the appropriate personnel when Associates was informed that a customer had filed bankruptcy. Even after information about a bankruptcy filing was entered into the computer data base, Associates continued to make improper contacts with bankruptcy customers.

Id. at 482.

Vital to Integrity of Consumer Bankruptcy

The imposition of punitive damages for egregious violations of the automatic stay is vital to the function of the consumer bankruptcy system. Most consumer debtors cannot afford to pay their attorneys to prosecute an automatic stay violation. The enforcement of the automatic stay is predicated upon major financial institutions observing the automatic stay. It should be noted that most major financial institutions do comply with the requirements of the automatic stay. The threat of a significant punitive damage award is an important deterrent to potential violators. The imposition of punitive damages also is important to protecting the integrity of the consumer bankruptcy system. When a creditor acts in arrogant defiance of the automatic stay the creditor is disregarding an important federal statute designed to effectuate the goals of the Bankruptcy Code. Equally important, when a creditor acts in arrogant defiance of the automatic stay it is circumventing the authority of the bankruptcy judge to exercise authority over that particular bankruptcy case. A bankruptcy judge is the only entity vested with the authority to determine whether the automatic stay should be lifted. Egregious violations of the automatic stay can be deleterious to a consumer bankruptcy debtor. For example, a creditor who refuses to return a repossessed vehicle after the commencement of a bankruptcy case can create a significant hardship for a consumer debtor. A debtor whose vehicle has been repossessed may not be able to rent a substitute vehicle. This can create a significant hardship for a debtor who has to commute to work, who has to transport a child to school, or who is a caregiver for a sick relative. A punitive damages award for an egregious violation of the automatic stay has the salutary impact of vindicating the authority of a Bankruptcy Court, vindicating the rights of a consumer bankruptcy debtor and punishing the transgressor. Therefore, under the appropriate circumstances, courts should impose punitive damages. Carlos J. Cuevas is a solo practitioner in Yonkers, New York, and a research associate at the University of Houston School of Law.