Bankr. E.D.N.C.: In re Dexter- § 362(k) Violation for Failure to Turnover Insurance Proceeds

Summary: The Debtors’ home was damaged by Hurricane Irene while they were in Chapter 13.  Their insurance issued a check for damages in the amount of $9,052.93 to the house and a second check for $1,376.54 for personal property, both payable jointly to the Debtors and Chase, the mortgage servicer. The Debtors followed the instructions on Chase’s website for insurance checks in the amount less than $20,000.00, endorsing the check and forwarding it to Chase, believing that since they were current on their Chapter 13 payments, Chase would expeditiously return the money to them for repairs. Because the Chapter 13 Trustee had only made a partial disbursement, despite the Debtors being current on their plan payments, Chase refused to return the insurance proceeds.  Additionally, Chase asserted that the Debtors had followed  insurance refund procedures for amounts not to exceed $10,000.00 and should have instead followed more detailed procedures. The Court first found that because the Debtors were current on their Chapter 13 plan payments,  which included the mortgage, they were current on their mortgage payments, regardless of the timing of the disbursements made by the Chapter 13 Trustee.  Had Chase believed otherwise, it could have filed a Motion for Relief from Stay.  Instead, it willfully and inappropriately attempted to apply insurance proceeds to a mortgage delinquency. Next the Court found that because the two separate checks were each for less than $10,000.00, the Debtors had complied with Chase’s insurance policies and were entitled to turnover of the proceeds immediately. Cumulatively, these refusals by Chase to release the insurance proceeds, as well as numerous contacts that Chase made directly with the Debtors, despite full awareness that they were represented by counsel, constituted a willful violation of the automatic stay.  In addition to ordering turn over of the insurance proceeds, Chase was ordered to pay $10,000.00 to the Debtors in punitive damages and $5,000.00 in attorneys’ fees. Dexter- § 362(k) Violation for Failure to Turnover Insurance Proceeds.PDF