The Power of Section 362

Bernie Gartland

Bernie Gartland

Hey everybody. Bernie Gartland, from the Garland Group. Today we’re going to talk about something that happened recently in a chapter 13 case. You know and I know that I have talked to you on podcasts, and also on our television show about chapter 13, a reorganization plan that you put your creditors in there, and it gets paid over a period of 60 months. What I also have told people in the past is the power of section 362. To refresh your memory, 362 a statute that says, “Hey, these people have filed a chapter 13. All you creditors, stop. You cannot go after them. You can’t call them on the phone. You can’t come to their house. You can’t do anything to collect, because you’ve been listed in this reorganization plan.”

The IRS issued a notice after the individuals were in a chapter 13, and they said they were going to come after them. The attorney got the notice, and just simply wrote back to the IRS, and saying, “You know, IRS, you can’t do this. There’s an automatic stay. Leave the people alone.” Nothing happened. The people got a second notice. A second notice. The attorney says to the client, who’s emotional distress is now growing because the IRS threatened to take their wages, and bank accounts, and so forth, and the attorney assured them that the IRS knows about the automatic stay, section 362. So, they felt more comforted.

Guess what. They got the third notice from the IRS that they’re coming after them. The attorney’s starting to get worried now, but he assured the clients nothing can be done, because 362 applies to the IRS, and they’ve gotten notice. They were assured, but their distress … It was a rough, rough chapter 13 for them. It was really, really bad for them. The emotion involved originally was somewhat that they could hardly handle the concept. Now, added that they got three notices from the IRS. Except for one thing. They got the fourth notice from the IRS. They’re coming after them. We’re going to take everything, et cetera.

Finally, the attorney had to bring it to the attention of the court. The court looked at the IRS and says, “You guys know better. You know you violated the automatic stay. What say you?” The IRS says, “We agree. We violated the automatic stay, but we’ll stop now, and so what?” The judge says, “So what? There’s a provision in the code that says, ‘if you cause emotional distress to the clients that are in a chapter 13, you will pay damages, and attorney’s fees.'” Guess what. The IRS had to pay $5,000 to these people in the chapter 13, and attorney’s fees. My point is, section 362 is so powerful, the IRS is saying, “Well, we can violate it, and there’s no repercussions.” Oh yes there are repercussions. For those of you that want to put control back in your life, and have that control give you a future, don’t discount the value of section 362 of the bankruptcy code for a chapter 13. If you want more information, go to We’ll see you next time.

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