The trial court held that the credit union’s actions, as well as that of the credit union attorney, violated the bankruptcy code’s automatic stay.

The trial court ordered the credit union and its attorney to pay $15,000 in punitive damages.

Here, debtor purchased a kit to transform his 1970 Volkswagen chassis into a 1937 Jaguar automobile. The debtor then borrowed money from Champion Credit Union and pledged the converted vehicle to the credit union as collateral.

Unbeknown to the credit union, the debtor disassembled the converted vehicle and sold the Jaguar kit for $3,500 to an out of state purchaser. Debtor kept the Volkswagen chassis.

After debtor sold a portion of the credit union’s collateral, debtor filed a Chapter 7 bankruptcy.

The credit union did not seek possession of its collateral in the bankruptcy court: Champion neither filed a motion to lift the automatic stay nor otherwise proceed in bankruptcy court to obtain possession of its collateral. Instead, the credit union filed a state court collection action against the debtor, alleging that debtor converted its collateral to his own benefit when the Jaguar kit was sold without the credit union’s authorization.

The bankruptcy court found that:

… the credit union’s state court action to collect the full balance owing on the secured loan violated the Bankruptcy Code’s automatic stay; this court also found that the credit union’s attorney violated the automatic stay by pursuing the state court collection case.

Although the debtor owed only $275.52 on the secured automobile loan, the court assessed punitive damages against the credit union and its attorney in the amount of $15,000.

The credit union and its attorney appealed the bankruptcy court’s findings and assessment of punitive damages. On appeal, the U.S. District Court found that the credit union did, in fact, violate the automatic stay, and the debtor’s civil rights had also been violated.

The U. S. District Court, however, reassessed the extent of damages that should be assessed against the credit union and its attorney.  Dan Braun v. Champion Credit Union (U.S District Court, Northern District of Ohio, No. 3:92CV7391).

EDITOR’S COMMENT

The opinion above held the credit union did have a right to file an action for possession only of its collateral, however, the credit union could not seek damages for the balance owing on the debt.

Author: Charles R. Harroun, Attorney at Law