Here, in the case of In re Krivohlavek, (8th Cir. BAP), Debtor, Terri Krivohlavek, filed a Chapter 7 bankruptcy petition with a Statement of Intentions to surrender one 2002 Ford Windstar that was pledged as collateral to Boys Town Federal Credit Union.

Prior to the bankruptcy filing date, Debtor paid her secured loan at the Credit Union through automatic payroll deduction from employment at Boys Town Research Hospital.

Debtor claims that in addition to the Credit Union receiving the Bankruptcy Notice from the Court, debtor notified the Credit Union of the bankruptcy filing by telephone and in writing requesting the automatic deductions and loan transfer payments be discontinued.

The Credit Union directed the Debtor to process a written form through the employer, which the Credit Union honored after receiving it several weeks later. In the mean time, the Credit Union continued the automatic payroll deductions and continued to apply funds to the secured loan.

After the date of bankruptcy filing, $1,875.86 was deducted from Debtor’s payroll and deposited in the Debtor’s Credit Union savings account. Of that amount deducted from Debtor’s wages, the Credit Union applied $1,315.86 of the funds to the secured loan balance.

The 8th Circuit Bankruptcy Appellate Panel ruling noted:

Section 362(a)(6) prohibits a creditor from taking “any act to collect, assess, or recover” a pre-petition debt, and § 362(a)(3) prohibits “any act to obtain possession…or to exercise control over property of the estate.” The Credit Union’s application of a portion of the funds automatically deposited into the Debtor’s savings account falls within the broad sweep these prohibitions.

The Credit Union was required to return $1,127.00 of funds to Debtor and the case was sent back to the lower court for sanctions to be assessed against the Credit Union for collecting the debt in violation of the automatic stay. The opinion stated that the sanctions against the Credit Union should, at a minimum, include a portion of Debtor’s attorneys’ fees incurred.

Author: Charles R. Harroun, Attorney at Law