By Gerri Elder
The automatic stay in bankruptcy means serious business and gives debtors serious protection from their creditors.
A Connecticut man recently found out just how strict the automatic stay provision is.
Mark Poveromo was ordered to repay money he collected on restitution from a builder, Mark R. Koch, who was convicted of stealing from him.
Yes, you heard correctly-a man must repay the guy that robbed him.
According to Newsday.com, it all started in 2006, when Poveromo hired Koch to construct a building for his pet food company.
Poveromo made a down payment of $39,500 on the $80,000 job. Koch cashed the check and never showed up for work.
Poveromo took action by filing a criminal complaint and, in April of 2007, Koch was convicted in Connecticut of first-degree larceny and ordered to pay restitution.
He made an initial payment of $25,000 and began making monthly payments on the remaining balance.
Two months before he was convicted of the larceny charge, Koch filed bankruptcy in St. Louis, triggering an immediate automatic stay provision under the U.S. Bankruptcy Code, which means his creditors are prohibited by law from attempting to collect their debts.
Poveromo said he never saw the notices of Koch's bankruptcy filing because they were sent to his old work address.
Koch filed a complaint with the bankruptcy court charging that Poveromo violated the automatic stay protection because he had him arrested to collect on his debt.
The bankruptcy judge sided with Koch, saying the arrest has "highly suspect timing" with Koch's bankruptcy filing and, subsequently, Poveromo intentionally violated the bankruptcy stay on claims.
"Allowing a creditor to use the threat of incarceration on charges related to a pre-petition debt undermines the most fundamental premise of bankruptcy law: the guarantee of equal treatment among creditors pursuant to the bankruptcy code," said the bankruptcy judge, Charles Rendlen III.
Not only was Poveromo ordered to pay back the restitution Koch gave him, but he was also ordered to pay Koch's lawyer fees and costs.
Poveromo has challenged the bankruptcy judge's ruling, but failed to get it overturned. The bankruptcy judge also didn't allow him to appear in bankruptcy court via telephone instead of traveling to St. Louis because he cares for his sick parents.
"The inconvenience experienced by the defendant's parents does not outweigh the need of the court to observe the defendant in person as he gives his testimony, to allow the court to best weigh his credibility," Rendlen wrote.
Koch's BK attorney didn't comment to Newsday.com and said the bankruptcy ruling speaks for itself.
Some people said the case highlights an area of bankruptcy law that Congress should fix so criminal restitutions won't be discharged through bankruptcy filings.
Others, like bankruptcy lawyers, have said that case exhibits the strength of the automatic stay.