Proceeds of Settlement for Stay Violation Part of Bankruptcy Estate

The district court for the southern district of Georgia held that settlement proceeds from post-confirmation violation of the automatic stay under section 362(k) are property of the chapter 13 estate under section 1306(a)(1). Crouser v. BAC Home Loans Servicing, No. 12-156 (S.D. Ga. Aug. 21, 2013). See also In re Furgeson, 263 B.R. 28 (Bankr. N.D. N.Y. 2001) (finding that stay violation settlement does not automatically revest in debtor under section 1327 and section 1306 renders it part of estate justifying modification of plan under section 1329). The court rejected the debtor’s argument that because an action for violation of the automatic stay cannot exist prior to the commencement of bankruptcy, it cannot be considered “of the kind specified in [section 541]” and cannot therefore become part of the estate under section 1306(a). Rather, the court found that settlement of the stay violation case was equivalent to any other cause of action that might have accrued post-confirmation and that, therefore, the claim was “like that of 541(a).” Although the court cited other cases reaching the same conclusion, see, e.g.,  In re Veal, No. 08-35319, 2011 WL 5240291 (Bankr. N.D. Ill. Nov. 1, 2011); In re Cox, 214 B.R. 635 (Bankr. N.D. Ala. 1997), the issue does not appear widely discussed. At least with respect to an award of actual damages, a reasonable argument can be made that such funds should not become estate property because by definition they are intended to restore the debtor to the position he was in prior to the stay violation. They are not a “windfall” but a recovery for a loss that took place after confirmation. See, e.g., In re Wright, 328 B.R. 660 (Bankr. E.D. N.Y. 2005) (“An award of actual damages under § 362(h) is intended to compensate a debtor for damages sustained as a result of a willful violation of the automatic stay.”); In re Cepero, 226 B.R. 595 (Bankr. S.D. Ohio, 1998) (awarding attorney fees actual damages and punitive to be paid directly to debtor’s counsel, with distribution of fees to counsel, actual damages to the debtor and punitive damages to be divided with two thirds going to the debtor and one third going to the estate).

Crouser opinion