Credit Union: Willful Violation of Automatic Stay
(1) termination of debtor’s member services at the credit union was not discrimination;(2) an administrative freeze on debtor’s account did not violate the automatic stay;(3) credit union’s notice to debtor indicating that it would continue applying postpetition payroll deductions to debtor’s loan was an unfair tactic and violated the automatic stay; and,(4) since the credit union willfully violated the automatic stay, it could not escape liability for paying debtor’s attorney’s fees.
Here, the debtor had one unsecured loan at the credit union with a balance of about $4,500. A second loan owed by debtor to the credit union was secured by debtor’s mobile home and had a balance of about $4,400.
Upon debtor’s filing for bankruptcy, the credit union terminated all member services and froze the debtor’s account. The debtor argued that termination of his member services at the credit union constituted unlawful discrimination against him for having availed himself of relief from the bankruptcy court.
The credit union maintained that it was their policy to terminate member services to any member who caused a loss to the credit union, regardless of whether the member filed bankruptcy.
The court held that the credit union could properly terminate member services to the bankrupt individual who was going to cause a loss, and that termination of these services did not discriminate against the debtor or violate the Bankruptcy Code.
Similarly, the court ruled in favor of the credit union in regard to placing an administrative freeze on the member’s account.
During the proceedings, the member did sign a reaffirmation agreement for each loan, however, debtor’s attorney refused to execute the attorney’s certification stating that reaffirming the unsecured loan was in debtor’s best interest.
Both signed reaffirmation agreements were returned to the credit union.
The credit union refused to file the reaffirmation agreements with the court (reaffirmation agreements are only enforceable if they are filed with the court) until debtor’s attorney would complete his section of the document.
The court held that the credit union’s holding the unfiled reaffirmation agreements hostage due to debtor’s attorney’s failure to complete the form was improper.
In addition, the court found that the credit union’s continuation of the automatic payroll deduction after debtor filed for bankruptcy constituted a willful violation of the bankruptcy stay.
The court ordered the credit union to pay $500 of debtor’s attorney’s fees, but denied debtor’s request for punitive damages. In re George Briggs, 143 B.R. 43).
Author: Charles R. Harroun