Author: Eric Wexler
QUESTION
Does the Fourth Circuit require a creditor to affirmatively discontinue a garnishment proceeding after a debtor has filed for bankruptcy?
ANALYSIS
Yes, Fourth Circuit case law requires a creditor to affirmatively discontinue a garnishment proceeding after a debtor has filed for bankruptcy. The Fourth Circuit is the U.S. Court of Appeals covering Maryland, in addition to several other states. One effect of filing a petition for bankruptcy is to “stay” legal proceedings against the applicant. The automatic stay provided for in 11 U.S.C. § 362(a) prohibits the continuation of a garnishment proceeding, which constitutes a judicial action against the debtor. See In re Giles, 271 B.R. 903, 905 (Bankr. M.D. Fla. 2002) (citing 11 U.S.C. § 362(a)(1) (“[A] petition filed under . . . this title . . . operates as a stay . . . of the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.”).
Fourth Circuit bankruptcy courts have held that as a general rule, a judgment creditor should dismiss a garnishment once they are aware that the debtor has filed for bankruptcy. See In re Williams-Nobles, 459 B.R. 242, 246 (Bankr. E.D. Va. 2011). “[A] garnishing creditor ‘cannot choose to do nothing and pass the buck to the garnishee or the court in which the garnishment is filed to effectuate the stay.’” See In re Bailey, 428 B.R. 694, 699 (Bankr. N.D.W. Va. 2010) (quoting In re Elder, 12 B.R. 491, 494 (Bankr. M.D. Ga. 1981)). See also In re Baum, 15 B.R. 538, 541 (Bankr. E.D. Va. 1981) (“The automatic stay of s 362 prevents the commencement or continuation of any collection efforts from the time of filing. Garnishment proceedings commenced prior to filing must be dismissed. It is the creditor’s responsibility to stop the downhill snowballing of a continuing garnishment.”).
Note that refusing to cooperate with a debtor’s request to dismiss a garnishment proceeding could subject a creditor to sanctions. See 11 U.S.C.A. § 362(k) (“[A]n individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”). See also In re Baum, 15 B.R. 538, 541 (Bankr. E.D. Va. 1981) (noting that the failure of a garnishing creditor to dismiss the garnishment proceedings commenced prior to filing is a violation of the automatic stay of 11 U.S.C. § 362 and may be punishable by contempt). Consequently, a creditor does not have any bargaining power with which to refuse to cooperate with the bankruptcy trustee or to request a monetary payment in return for dismissal of the garnishment proceeding.
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