July 5, 2009
8th Circuit BAP Rules that Credit Union Violated the Automatic Stay in Collecting Auto Loan
In re Krivohlavek, --- B.R. ---, 2009 WL ----------- (8th Cir. BAP, May 2009)
Issue: Does a credit union violate the automatic stay when it removes funds from the debtor’s savings account for payment of an auto loan where the debtor has announced she intends to return the vehicle but has not?
The chapter 7 debtor filed her statement of intention with her schedules indicating that she intended to return a vehicle which had been financed by her credit union. The payments on the loan were paid by an automatic deduction from her paycheck which funds were placed into her credit union savings account and then, from there, apparently immediately, transferred out by the credit union in payment of the loan. The payroll deduction was a little more than the loan payment as some of the deduction was for a “Christmas account.” The debtor informed the credit union shortly after she filed that she was going to return the vehicle and that she wanted the automatic payments stopped. The credit union told her “that it did not have the ability to stop the automatic payment of her loan and that the only way to do so was for the Debtor to obtain a form from her employer, sign it, and then submit it to the Credit Union.” The debtor eventually filled out and submitted the right form but by then $1,300 had been taken from her savings account and applied to the loan.
The debtor filed a motion for turnover and for sanctions which the bankruptcy court denied. The credit union argued that it did not “violate the automatic stay because it did not take any affirmative act to collect a debt from the Debtor; it merely received what it believed were voluntary payments on a loan.” The court accepted the credit union’s position that only the debtor could stop the paycheck deductions, it was essentially a one-step process, that is the transfer by the employer to the credit union resulted in the payment, and that since she had not returned the vehicle, she apparently intended to keep it and therefore the credit union could keep the payments.
The 8th Circuit BAP reversed. It disagreed with the factual finding that the credit union was not able to stop the withdrawal from the savings account. “[H]ere the Credit Union took an affirmative step beyond the mere receipt of an automatic payment – it applied a portion of the funds automatically deposited into the Debtor’s account toward payment of a debt. And that affirmative step constitutes an act to collect a debt prohibited by § 362(a)(6).”
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