In re Trujillo
485 B.R. 238
Bankr.D. Colo.2012Background
- Creditor obtained a Colorado judgment against Trujillo and, via Law Firm, served a continuing writ of garnishment on Trujillo's employer.
- Debtors filed Chapter 7 on August 12, 2011 and notified the employer of the bankruptcy; their schedules did not list the debt.
- Law Firm received garnished funds from the August 18, 2011 paycheck on August 22, 2011, the same day Debtors' counsel learned of the filing.
- Law Firm released the writ on August 24, 2011 but did not return $835.80 of the garnished funds (the Funds).
- Trustee later sued the Creditor to recover garnished funds; Creditor repaid the Funds to the trustee, including the Funds at issue.
- The Debtors claim the Funds were property of the estate, not exempt, and seek damages for stay violations by the Law Firm; the Court analyzes turnover and stay implications and standing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the garnished funds property of the estate under §541? | Funds were property of the estate as of the petition date. | Garnishment liens and pre-petition rights may limit estate classification. | Yes; funds constitute property of the estate. |
| Did the Law Firm's retention of the Funds violate the automatic stay §362? | Holding Funds post-petition violated stay protections and disrupted the Debtors' breathing space. | Law Firm had a valid garnishment lien and sought to protect it; turnover not required. | Yes; the stay was violated by retaining the Funds. |
| Did the turnover statute §542 require immediate delivery of the Funds to the trustee? | Entities in possession of estate property must deliver it to the trustee. | Lien rights may justify withholding; delivery to trustee is not automatic. | Yes; turnover obligation extended to the Funds, regardless of lien. |
| Do the Debtors have standing to pursue a stay-violation claim? | Debtors should have standing to preserve the breathing spell and protect exempt/estate interests. | Standing is limited to the trustee for stay violations involving property of the estate. | Debtors have standing to raise the stay-violation claim; standing is not exclusive to the trustee. |
| What damages, if any, are available for a willful stay violation by the Law Firm? | Debtors incur fees and other damages for the stay violation; may seek emotional distress and punitive damages. | Evidence of damages is lacking; emotional distress not proven; only limited fees may be granted. | Damages awarded for fees incurred before funds were returned; no proven emotional distress or punitive damages at this time. |
Key Cases Cited
- United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) (broad interpretation of property of the estate under §541)
- In re Jackson, 251 B.R. 597 (Bankr.D. Utah 2000) (turnover of pre-petitionly repossessed property to debtor; stay/turnover ties)
- In re Mwangi, 432 B.R. 812 (9th Cir. BAP 2010) (standing to assert §362(k)(1) damages; exemption standing issues)
- In re Jimenez, 406 B.R. 935 (D.N.M. 2008) (standing of chapter 7 debtor to assert stay violations in Wells Fargo context)
- In re Bucchino, 439 B.R. 761 (Bankr.D.N.M. 2010) (Wells Fargo standing questions for chapter 7 debtors)
- In re Cook, 2012 WL 1356490 (10th Cir. BAP 2012) (debtor standing to pursue stay violations; trustee as channel not exclusive)
- St. Paul Fire & Marine Ins. Co. v. Labuzan, 579 F.3d 533 (5th Cir. 2009) (broader standing to include individuals injured by stay violations)
- Citizens Bank v. Strumpf, 516 U.S. 16 (1995) (bank freeze and §542(c) setoff context; limitations to stay analysis)