Academic journal article Missouri Law Review

Setting Things Straight: Adding a Provision to Allow Damages for Emotional Distress in the Bankruptcy Code Could Clear Up a Lot of Confusion

Academic journal article Missouri Law Review

Setting Things Straight: Adding a Provision to Allow Damages for Emotional Distress in the Bankruptcy Code Could Clear Up a Lot of Confusion

Article excerpt

I. INTRODUCTION

Every year, Americans who file for bankruptcy (1) receive protection from the automatic stay, a statutory device designed to stop creditors' collection efforts while the debtor puts his financial affairs in order. (2) Despite the existence of the stay and the fact that it is automatically triggered upon a debtor's filing for bankruptcy, courts are replete with cases in which overly aggressive creditors use questionable and reprehensible means to obtain payment from delinquent debtors. (3) As a result of creditors' actions in violation of the automatic stay, an aggrieved debtor, already suffering under the weight of his financial difficulties, may experience some form of emotional distress. (4) Although the Bankruptcy Code permits an award of actual and punitive damages, as well as attorneys' fees, to an injured debtor, the Code does not explicitly address whether damages are available for emotional distress. (5) Thus, courts are left to wrangle with the issue themselves, often undertaking considerable analysis of the statutory text, statutory history, and contextual clues to address the issue. (6) Not surprisingly, this struggle often leads to divergent results between courts. With differing standards and burdens of proof depending on the court, aggrieved debtors are often at the mercy of the specific jurisdiction's precedent. (7) The inconsistent treatment of the same statutory text leaves the debtor rolling the dice--what may be a large recovery for emotional distress in one jurisdiction may amount to little or nothing in another jurisdiction. (8)

This Comment details the history of the automatic stay, the differing treatment of the statute in various jurisdictions, and the potential ramifications to debtors. Clearly, much of the time-consuming analysis performed by courts could be avoided if the Bankruptcy Code expressly permitted recovery for emotional distress, something most courts already permit, albeit only after considerable hand-wringing and strained reasoning. As a result, this Comment proposes a statutory addition to [section] 362(k) that addresses the dual concerns of bankruptcy courts: (1) allowing a legitimately injured debtor to recover for emotional distress damages while (2) providing a standard and burden of proof narrow enough to prevent frivolous claims. The proposed addition is also broad enough to allow courts discretion to consider the type of harm alleged and the credibility of the source, while requiring "severe emotional distress"--a requirement designed to curb or eliminate frivolous claims. (9) Finally, it is also argued that as a policy matter an addition is necessary not only to meet the primary underlying objectives of the automatic stay but also to provide consistent treatment for all debtors and creditors regardless of the jurisdiction. (10)

II. LEGAL BACKGROUND

Under the federal bankruptcy system, when a debtor files a bankruptcy petition, a bankruptcy estate is automatically created consisting of "all legal or equitable interests of the debtor in property as of the commencement of the case." (11) The filing of the petition also triggers an automatic stay pursuant to [section] 362, which is considered to be "among the most basic of debtor protections under bankruptcy law." (12) The automatic stay springs into effect immediately upon the filing of a bankruptcy petition, regardless of whether the parties to the proceeding are aware that a petition has been filed (13) and it operates without the necessity of judicial intervention. (14) Correspondingly, because the stay is automatic, it cannot be waived and relief from it "'can be granted only by the bankruptcy court having jurisdiction over a debtor's case.'" (15)

Generally, the stay prohibits:

"the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case. …

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