Since back in 2005 when the bankruptcy code changed, the U.S. Bankruptcy Court system has seen a steady increase in those filing for bankruptcy. Back when the change took effect there was approximately a half million people filing bankruptcy every year. This has escalated all the way up to over 1.5 million last year in 2010. So far in 2011 it has been flat and comparable to the year we had in 2010. With the increase in bankruptcy filings there has been a huge increase in automatic stay violations.
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It seems that some creditors don't like to obey the court orders to stop collection attempts on the debts they are owed. With all the consumers having their rights violated in a bankruptcy filing there has become a niche business for the bankruptcy attorney who's experienced in suing creditors for automatic stay violations. Because of the cost of the time a bankruptcy attorney will spend to prepare the case the debtor will ask to have the court force the creditor to pay their legal fees. This helps encourage already over encumbered debtors to pursue legal action against aggressive creditors. Making an example out of these debt collectors who refused to obey a court order put the teeth back in a bankruptcy filing.
There have been some recent court cases stating that the debtor could only recover legal fees to the extent they incurred enforcing the automatic stay and not extending to the litigation of damages. This overruled a previous decision from back in 1997 where it stated that a debtor could recover their bankruptcy attorney fees in the prosecution of an automatic stay violation. Will this later decision from the Circuit court to stop debtors from prosecuting claims where no attorney fees are available for pursuing damages? Not necessarily, in most cases, the prosecution of an automatic stay violation in a bankruptcy filing can usually be taken care of via a motion. Because of this, a bankruptcy lawyer might just substitute a portion of the fees in exchange for a contingency fee against the final award.
The bulk of most of the work required by the bankruptcy lawyer is in enforcing compliance with 11 USC 362 on the creditor. Rarely does the attorney spend a lot of man hours on determining the damages to be awarded. The reason that there are so many flagrant violations of the automatic stay with creditors is their ignorance to the bankruptcy law and in many cases feel that the automatic stay does not apply in their situation. Because of this, after the initial consultation with a bankruptcy lawyer the creditor will immediately stop violating the automatic stay.
Not only will the prosecution of the automatic stay expose creditors to attorney fees in the damages portion of the case, but they also risk coercive sanctions against them by the bankruptcy court. Adding this to the creditors defense bill the cost can run up in the tens of thousands. Most of the time, creditors comply with attorney representing the client filing bankruptcy, before it gets too costly for them.
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