Texas debtors’ rights to collect legal fees from creditors

| Oct 28, 2015 | Chapter 13 Bankruptcy |

The U.S. Court of Appeals for the 9th Circuit has ruled that creditors may now be required to pay the legal fees of debtors who have sued for damages in connection with a violation of an automatic stay. Previously, debtors were only permitted to do so in connection with curing the stay, and the decision actually overturned the court’s previous ruling on the topic.

The ruling came in a review of a lawsuit filed by a debtor who was in Chapter 13 bankruptcy and whose house had been foreclosed upon. The debtor was making the required payments at the time. The creditor returned the home to the debtor on the order of the bankruptcy court, but the debtor also successfully sought an award for damages which stood on appeal. However, the bankruptcy court denied the debtor reimbursement for the legal fees incurred in seeking those damages.

This decision was reversed by the Bankruptcy Appellate Panel. The 9th Circuit upheld on the grounds that a previous case had been decided incorrectly and that a debtor could collect legal fees for a case dealing with damages. This decision gives debtors more incentive to pursue damages in automatic stay violations, and it brings the 9th Circuit in line with every other court that has considered the matter.

People who are struggling with overwhelming financial obligations and who are seeking debt relief may want to obtain the advice of a bankruptcy attorney. Filing for bankruptcy in most cases result in an automatic stay of collection activities, and creditors are forbidden from taking further action against the debtor. The two principal forms of consumer bankruptcy are Chapter 7 and Chapter 13, and an attorney can outline the eligibility requirements of each.