Bankruptcy Court Curtails Debt Collection Awards and Exemptions

In a succinct opinion, the Bankruptcy Court for the Eastern District of North Carolina has signaled that it will not rubber stamp settlements or exemptions involving debt collection cases.  In Brantley v. CitiFinancial, Adv. Pro. 13-00197-8-DMW (Bankr. E.D.N.C. Jan. 15, 2015), the consumer filed an adversary proceeding seeking actual and punitive damages, including statutory damages and attorney’s fees, for the creditor’s violation of the automatic stay and the creditor’s failure to comply with the North Carolina debt collection statutes.[1]  The complaint asserted both pre and post-petition telephone calls attempting to collect the debt and a post-petition letter proposing a solution to the delinquency.  The consumer and the creditor agreed to settle the matter for $49,000.00 and proposed to pay counsel 1/3 of the settlement proceeds as attorney’s fees.  A Motion to Approve Settlement in Adversary Proceeding was filed with the court and an amended Schedule C was filed in the bankruptcy proceeding seeking to exempt the settlement proceeds as compensation for personal injury.  The court denied the motion to approve settlement, stating that the settlement was neither fair nor equitable and that “it was not reasonably comparative to the damages or injuries allegedly suffered by the plaintiffs.  The sum of $49,000.00 for the alleged stay violations and alleged inconveniences, such as nausea and anxiety is outside the range of reasonableness in this case.” (emphasis supplied).

While the denial of the Motion to Approve Settlement mooted the amendment to Schedule C, the court took the opportunity to further clarify its position on debt collection settlements.    In dicta, the court, while acknowledging that emotional distress may be a component of a damage award for statutory debt collection violations, stated that it does not necessarily transform the claim into a personal injury tort claim.  The court noted that while severe emotional distress would qualify for the exemption, “mere stress and inconvenience…do not qualify as personal injuries.”  

Since the denial of the motion, the plaintiff has filed a second motion to approve settlement still seeking the full $49,000.00 but further clarifying the categorization of the damages as being $14,834.84 in actual damages, $17,822.84 in punitive damages and civil penalties and $16,333.33 in attorney’s fees.  [Docket Entry No. 48].  The second motion also sets forth further detail as to the level of the damages and injuries claimed by the consumer.  Whether or not the court will grant the second motion remains to be seen, but the case bears tracking as this district has seen a spike in adversary proceedings involving debt collection claims in the past year.

FOLLOW UP - MARCH 1, 2015:

On February 22, 2015, the bankruptcy court approved the second motion to approve settlement without further comment. [Docket Entry No. 49]. 

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[1] North Carolina has a bifurcated statutory debt collection scheme.  Chapter 75 of the North Carolina General Statutes governs the debt collection activities of creditors and others who are not collection agencies.