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Remedying Stay Violation by SSA/Dept. of Treasury
Dear Mark,
There are two statutory provisions under which you can get damages for stay violations: 105(a) and 362(k) (this used to be 362(h) prior to the enactment of BAPCPA). Why do we need more than one?
Section 362(k)'s provision affords relief only to individuals (with emphasis added): "[A]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages." Thus, for example, if a corporate debtor is injured by a stay violation, it cannot appeal to 362(k). Instead, it can use 105(a). Such an action is prosecuted under a contempt theory:
It is clear that, even though a trustee does not qualify as an "individual" for purposes of section 362(h), a trustee can recover damages in the form of costs and attorney's fees under section 105(a) as a sanction for ordinary civil contempt. See United States v. Arkison (In re Cascade Roads, Inc.), 34 F.3d 756, 767 (9th Cir. 1994) (damages not otherwise available to a corporate debtor under section 362(h) for a creditor's willful violation of the automatic stay were nevertheless available under section 105(a) as a sanction for ordinary civil contempt; distinguishing In re Goodman, supra). It is equally clear that, while an award of damages under section 362(h) is mandatory, an award of damages under section 105(a) is discretionary. Id.; In re Pace, 159 B.R. at 904.
In re Pace, 67 F. 3d 187, 193 (9th Cir. 1995).
Therefore, since a nonindividual debtor can seek relief from a stay violation under a contempt theory, it follows that a stay violation is a form of contempt, i.e., contempt of the order for relief. Thus, an OSC motion is an appropriate vehicle to use.
Judge Zurzolo feels that if you are seeking money damages, Fed. R. Bank. Proc. 7001 (1) is implicated: "The following are adversary proceedings: (1) a proceeding to recover money or property . . ." Therefore, he insists on an adversary proceeding.
However, given that adversary proceedings are more expensive than OSC motions, and given the Ninth Circuit's holding in Sternberg v. Johnston, 595 F. 3d 937, 949 (9th Cir. 2010) ("actual damages under 362(k)(1) do not include fees incurred in prosecuting the adversary proceeding to obtain damages"), I use an OSC motion where possible, and resort to an adversary proceeding only when necessary. I have successfully used an OSC motion before Judge Ahart when seeking relief from a stay violation.
I wish you a solid victory.
Nick
Nicholas Gebelt
Nicholas Gebelt, Ph.D., J.D.
Attorney at Law
Certified Bankruptcy Law Specialist
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Dear Mark,
The highlighted language establishes the kind of debt covered by this exception:
The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay - . . . under subsection (a), of the setoff under applicable nonbankruptcy law of an income tax refund, by a governmental unit, with respect to a taxable period that ended before the date of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of a tax liability, the governmental unit may hold the refund pending the resolution of the action, unless the court, on the motion of the trustee and after notice and a hearing, grants the taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff under section 506 (a) . . .
Thus, this exception only applies to the interception of a refund to pay an income tax liability. It does not cover a benefit overpayment liability. If the intercepted funds really were seized to cover a benefit overpayment, there was a stay violation.
You may wish to create a paper trail of trying to resolve the dispute outside of the Bankruptcy Court. Send the Treasury Department a letter explaining the problem and asking for the return of the money. Give a time deadline. If they are not forthcoming, file an OSC motion (or if the judge is Zurzolo, an adversary complaint). You can get costs and attorney's fees, so you won't be working pro bono - not that there's anything wrong with the philanthropic practice of law; it just doesn't make fine dining and good syrahs and scotches possible.
All the best,
Nick
Nicholas Gebelt
Nicholas Gebelt, Ph.D., J.D.
Attorney at Law
Certified Bankruptcy Law Specialist
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Law Offices of Nicholas Gebelt
15150 Hornell Street
Whittier, CA 90604
Phone: 562.777.9159
FAX: 562.946.1365
Email: ngebelt@goodbye2debt.com; ngebelt@gebeltlaw.com
Web: www.goodbye2debt.com
Blog: www.southerncaliforniabankruptcylawblog.com/
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Dear Mark,
There might not be a stay violation if the seizure of the funds was done because of 362(b)(26):
The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay - . . . under subsection (a), of the setoff under applicable nonbankruptcy law of an income tax refund, by a governmental unit, with respect to a taxable period that ended before the date of the order for relief against an income tax liability for a taxable period that also ended before the date of the order for relief, except that in any case in which the setoff of an income tax refund is not permitted under applicable nonbankruptcy law because of a pending action to determine the amount or legality of a tax liability, the governmental unit may hold the refund pending the resolution of the action, unless the court, on the motion of the trustee and after notice and a hearing, grants the taxing authority adequate protection (within the meaning of section 361) for the secured claim of such authority in the setoff under section 506 (a) . . .
Although you said that the liability arose because of a social security overpayment, your client may have been mistaken about what liability led to the seizure. Social security tax is a tax on income, so maybe the liability was for an unpaid social security tax.
If it turns out that there really was a violation of the stay, be sure to include a discussion of the applicability of 106(a)(1) and (3), together with Central Va. Cmty. Coll. V. Katz, 126 S. Ct. 990 (2006), which upheld the constitutionality of the waiver of sovereign immunity. In going after the Sheriff I have used the following statement:
The Sheriff's Office is a governmental unit operating within the Central District of California. As provided under 11 U.S.C. 106(a)(1), " . . . sovereign immunity is abrogated as to a governmental unit . . . with respect to . . . Sections 105, . . . 362 . . . of this title." Moreover, the U.S. Supreme Court upheld the constitutionality of this provision in Central Va. Cmty. Coll. v. Katz, 546 U.S. 356 (2006). Therefore, this Court has jurisdiction over the Sheriff in this matter.
You can get costs and attoney's fees under 362(k), but you cannot get punitives because of 106(a)(3).
Good luck,
Nick
Nicholas Gebelt
Nicholas Gebelt, Ph.D., J.D.
Attorney at Law
Certified Bankruptcy Law Specialist
[Description: Description: Description: cid:image003.jpg@01CC076B.B14D73C0]
Law Offices of Nicholas Gebelt
15150 Hornell Street
Whittier, CA 90604
Phone: 562.777.9159
FAX: 562.946.1365
Email: ngebelt@goodbye2debt.com; ngebelt@gebeltlaw.com
Web: www.goodbye2debt.com
Blog: www.southerncaliforniabankruptcylawblog.com/
Important notice required by 11 U.S.C. 528: We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
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Section 362(b)(2)(F) ?
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To: cdcbaa
Sent: Mon, Aug 5, 2013 12:04 pm
Subject: [cdcbaa] Remedying Stay Violation by SSA/Dept. of Treasury
Filed a Ch. 7 for a debtor who owed money to the social security admin for overpayments. Debtor was also owed a tax refund from the IRS on the petition date.
Shortly after the case was filed, the U.S. Dept of Treasury, on behalf of the SSA, took debtor's refund in violation of the automatic stay (at least I think it was a violation, but I suppose there might be a postpetition right to setoff somehow). Debtor wants her tax refund back.
I have sent 3 different letters, and talked to 4 different people at the various agencies, and nobody will acknowledge that it's their job to deal with it. I first contacted the SSA and they said I had to contact the Treasury Dept., since they're the ones who took and are holding the payment. The Treasury Dept. sent me back a written letter saying I need to contact the "creditor agency" (i.e., the SSA). I contacted the SSA back and have now spoken to 3 other people who are giving me the runaround.
They don't have the equivalent of a Special Procedures Dept. to my knowledge.
Has anyone dealt with these agencies in a similar situation? I suppose I'll have to file a Motion for Sanctions for Violation of the Automatic Stay, but I was trying to resolve this less formally.
Any suggestions? And if anyone thinks this was not a violation of the stay, I'd like to hear that as well.
Thanks,
Mark
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Mark J. Markus
Law Office of Mark J. Markus
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