Bankruptcy practitioners were dismayed by the 9th Circuit’s decision in Sternberg which parsed the provisions of section 362(k) to limit the award of attorneys fees against creditors who violated the automatic stay. This week I saw the real world impact of that pernicious decision.
Young bankruptcy attorney is reluctant to take up kudgel for debtor seriously abused by creditor after the filing of the bankruptcy petition, including explicit threats against the debtor should he object to the stay violations. Pre Sternberg, it was understood that the attorneys fees to enforce the stay were a part of the damages. Now, at least under § 362, attorneys fees may be limited to those necessary to stop the violation, but not to collect damages for the violation.
The 9th Circuit, in my opinion, provided little guidance on how the attorneys fees to stop the violation are to be collected or how to allocate fees between stopping the violation and collecting damages. The second amended opinion added a footnote to the effect that attorneys fees may be awardable under other provisions of the bankruptcy code.
So my friend has to now calculate whether to take up a meritorious cause for this debtor, wondering whether the fight could be financially ruinous to the attorney: lots of work against a determined and deep pocketed miscreant and little reward at the end.
If the risk of non payment scares competent and energetic counsel off of the vindication of bankruptcy rights, we have all lost.