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No matter how frustrated a lender may be with his debtor, that automatic stay of Section 362 of the bankruptcy code is still a stay. In the recent case of in re Stellato, decided by the Colorado Bankruptcy Court on May 9, 2014, Mr. Stellato had a grocery and deli. He financed his store equipment with Den-Cut Financial. When he defaulted, Den-Cut attempted a self- help repossession. He sent trucks and big men with hairy knuckles and big wrenched to remove the equipment. Stelatto called the police who came and told Den-Cut to leave. (Remember, as soon as someone tells you to “stop” in your self- help repossession activities, you must stop or you will be breaching the peace).

Not to be deterred, Den-Cut went to court and obtained a replevin order and returned with the same people and equipment. Only this time, they brought the police to enforce the state court replevin order. However, between the time of the attempted self- help repossession and the replevin, Stellato had filed Chapter 13 and as you may know, the filing of a bankruptcy petition invokes the automatic stay prohibiting, among other things, the commencement of or continuation of efforts to repossess property.

Upon being told by Stellato of the filing of the Chapter 13, the sheriff called the clerk of the state court, who verified the bankruptcy filing and the sheriff made the Den-Cut people withdraw. Well, if you thought the lender was frustrated when he was turned away the first time, this time his frustration bubbled over the top. “F*** the stay,” he said, “I want my equipment.” Not smart!

The bankruptcy court found that “the automatic stay is among the most basic protections under bankruptcy law,” and that “Den-Cut clearly put its economic objectives ahead of debtor’s rights under the bankruptcy code.” The court found that the debtor had been damages $11,271 for loss of product and damages to the premises by forcing entry. The court also awarded punitive damages in the amount of $25,000 PLUS Stelatto’s reasonable attorney fees which have not yet been determined.

The moral of the story? Check PACER to make sure there is no stay in place before attempting a repossession of collateral, whether by self help or state court order. And try not to say “f*** the stay” within earshot of a bankruptcy judge.

What is written here is not legal advice. You should consult your attorney before applying any of this information to a specific situation.