Ninth Circuit ruling may help New York debtors

Reversing its own 2010 ruling, the U.S. Court of Appeals for the 9th Circuit recently decided that debtors may seek attorney’s fees incurred while prosecuting cases related to automatic stay violations. These fees may be sought and recovered even after the violation has been cured. According to the Bankruptcy Code, debtors are allowed to recover attorney’s costs, fees and actual damages related to the violation of the stay.

However, the 9th Circuit had originally ruled that a debtor was only entitled to fees to end the violation itself, as opposed to fees related to seeking damages. The case in question involved a homeowner who had his home foreclosed upon after filing for Chapter 13 bankruptcy despite making payments as required. A judge ordered the loan servicer to return the home to the homeowner, which the company promptly did.

The debtor filed a lawsuit asking for damages in addition to getting his home back, which he won. However, since the servicer had complied with the court order before the appeal was completed, the bankruptcy court ruled that the debtor was not entitled to attorney’s fees based on the precedent set in 2010. The recent ruling now brings the 9th Circuit in line with every other court that has been confronted with the issue.

Debtors who are struggling to keep up with payments but who have a relatively reliable source of income may want to speak with an attorney about the advisability of filing for Chapter 13 bankruptcy. Under this chapter, a person’s debts can be reorganized in accordance with a court-approved payment plan that lasts for a period of three to five years. Legal counsel can explain the eligibility requirements that are associated with Chapter 13.