At least four of the U.S. Circuit Courts of Appeals, including the 9th Circuit that includes California, have ruled that damages for emotional distress may be warranted in cases of a willful violation of a bankruptcy's automatic stay. The purpose of the automatic stay of collection efforts is to provide the bankruptcy petitioner with a breathing spell and temporarily relieve them of the financial pressures that led to the bankruptcy.
At 11 U.S.C. section 362(k)(1), the bankruptcy code says an individual who suffers harm due to a willful violation of an automatic stay shall recover damages, which may include attorneys' fees, costs and punitive damages. The code does not specify whether damages for emotional distress may be recovered. The courts that have ruled emotional distress damages are available in cases of willful violation reviewed the code's legislative history and concluded that Congress was in fact concerned with psychological and emotional consequences in addition to financial harm.
In cases when a debtor is seeking recovery of emotional distress damages following a willful violation of an automatic stay, the debtor must bear the burdens of persuasion and production. The standard employed by the decision-maker is more than a preponderance of evidence. The injured party must establish that they suffered significant emotional harm due to a creditor intentionally and knowingly taking actions prohibited by bankruptcy code section 362. Debtors may present evidence or testimony from friends, co-workers or family members to corroborate claims of emotional harm.
Debtors who are struggling to make payments may want to consider their options to restructure, reduce or eliminate their debts. An attorney with experience in bankruptcy law may be able to help by examining an individual's situation and offering advice regarding the possible avenues of debt relief. If the petitioner is harmed by a creditor's willful violation of an automatic stay, legal counsel may be able to draft and file documents to state a claim for recovery.