In the recent holding by the Bankruptcy Appellate Panel of In re Zotow (Zotow v. Johnson, July 21, 2010, San Francisco), the BAP concluded that BAC Home Loans Servicing did not violate the automatic stay when it sent the Debtors a notice of increased mortgage payments.
The Zotows were Chapter 13 bankruptcy, which means that the automatic stay halted creditor acts to collect debt without a court order that would terminate the stay. Creditors are entitled to file a proof of claim, and must segregate the debt into pre-petition (before bk filing) and post-petition arrearages. For example, if the borrower misses May, June and August, then files bankruptcy on Aug. 31, the September 1st payment is post-petition and then 3 missed payments are pre-petition.
Here, the servicer BAC did something I consider unusual, it tried to mush the two types of debt together by increasing the amount of the monthly post-petition payments since the debtors had failed to pay on pre-petition debt. That means, according to the example above, the lender calculated the 3 months of missed interest and increased the interest owed in September--which is technically including pre-petition debt.
Also, when the Debtors paid the Chapter 13 Trustee, the Trustee forwarded those payments to BAC which then applied the post-petition payments to pre-petition debt instead of post-petition debt. (This is fairly common, as a default in billing systems...when the debtor pays the lender in September, the lender's default is often to apply the payment to the first missed payment which is May in our hypothetical.)
Debtors challenged BAC's proof of claim, and sued BAC for violating the automatic stay, asserting that the notice was an "act" as well as the application of the payments to pre-petition debt.
The Court disagreed and concluded that the Notice was an informal communication--not a prohibited communication that violated the automatic stay. One of the key determining factors on whether the Notice was intended to collect a debt was that it was not sent with a payment coupon or return envelope and therefore factual in nature. An additional consideration was whether that information was relevant or useful to the debtor. For example, in a Chapter 7, that fact of the increase would not be useful to the Debtor, and could perhaps be considered harassing.
The Zotow Court seems to agree that the lender screwed up two things: 1) improperly including pre-petition debt in the calculation of post-petition payments, and 2) the application of the Chapter 13 Trustee's payments. However, neither act rose to the level of a violation of the automatic stay and the Court noted that the debtors had other remedies available to them.