Summary:
In Terrance v. Coastal Federal Credit Union, the U.S. District Court for the Eastern District of North Carolina affirmed a bankruptcy court decision imposing $5,000 in sanctions for a willful violation of the automatic stay, while rejecting several broader arguments raised by the pro se debtors on appeal.
The decision provides a useful reminder of two points frequently litigated in stay-violation cases:
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Who is entitled to damages under §362(k), and
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How much procedural help courts must give pro se litigants.
The Facts: Bankruptcy Filed — But the Calls Kept Coming
Jaden and Jesse Terrance filed a joint Chapter 7 petition on April 8, 2025. The Coastal Federal Credit Union credit card debt at issue, however, was owed only by Jaden Terrance, not by Jesse.
Although Coastal quickly received notice of the bankruptcy, a glitch in newly implemented collection software failed to properly flag certain Visa accounts. As a result:
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Coastal sent two emails,
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placed 16 collection calls, and
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reported the account as “30 days past due” to a credit bureau
after the bankruptcy filing.
The calls stopped only after the debtor finally connected with a Coastal employee and informed them directly of the bankruptcy.
At the sanctions hearing, Jaden Terrance testified that the repeated calls triggered significant psychological distress tied to PTSD and depression, and that the stress caused her to miss administering a medication to her spouse, Jesse, who suffers from hereditary angioedema, resulting in a serious medical episode.
The bankruptcy court found the violation willful and awarded $5,000 in damages, but declined to award punitive damages.
The debtors appealed.
The District Court: Affirmed Across the Board
Judge Louise Flanagan affirmed the bankruptcy court’s ruling in full.
1. Only the Targeted Debtor Can Recover Stay Damages
The most significant legal issue concerned whether Jesse Terrance could recover damages even though the debt belonged solely to Jaden.
The district court held no.
Although a joint bankruptcy petition was filed, the Fourth Circuit treats joint filings as administratively combined but legally separate estates. Because Coastal attempted to collect only from the debtor whose name was on the account, only that debtor could claim a stay violation.
The court rejected the argument that a spouse harmed by the violation could recover damages based on foreseeability or household impact.
In short:
Filing a joint petition does not expand §362(k) to cover non-obligor spouses who were not the target of the collection activity.
2. Courts Do Not Have to Act as Lawyers for Pro Se Debtors
The Terrances also argued the bankruptcy court should have admitted exhibits for them or instructed them more clearly on how to prove damages.
The district court rejected that as well.
While courts must give pro se litigants some leeway, they are not required to act as advocates. The bankruptcy judge explained that the documents attached to the motion were not yet in evidence, and it remained the debtors’ responsibility to formally introduce them.
The court noted that the bankruptcy judge nevertheless considered testimony describing the documents, which mitigated any prejudice.
3. No ADA or Due Process Violation
The debtors also argued the bankruptcy court should have paused the hearing or provided accommodations when Jaden Terrance became emotional during testimony due to PTSD.
The district court disagreed.
The transcript showed the judge allowed time for her to compose herself, permitted Jesse Terrance to finish the closing statement, and otherwise gave the debtors a full opportunity to present their case.
That satisfied both due process and the ADA’s requirement of reasonable modification.
4. $5,000 Was Within the Court’s Discretion
The bankruptcy court found that the calls and emails caused real emotional distress beyond ordinary bankruptcy stress, particularly given the debtor’s medical history and the consequences for the household.
Still, punitive damages were denied.
The reason: the violations stemmed from a software error in a newly implemented system, which Coastal corrected immediately once the problem was discovered.
Under Fourth Circuit precedent, that did not rise to the level of reprehensible conduct warranting punishment.
Commentary
Two aspects of this case are worth noting for consumer bankruptcy practitioners.
1. The Decision Reinforces a Narrow Reading of §362(k)
The Terrances attempted to push a creative theory: that a spouse harmed by the stress and consequences of a stay violation should also be able to recover damages.
From a policy perspective, the argument has some appeal. Bankruptcy stress rarely affects only one person in a household.
But the court applied the Fourth Circuit’s traditional rule: the automatic stay protects the debtor against collection on that debtor’s obligations, not the household generally.
Unless the creditor’s conduct is directed at the second spouse, there is no independent stay violation as to that person.
2. Even “Accidental” Stay Violations Can Be Expensive
Coastal’s defense boiled down to:
“Our new collections software malfunctioned.”
That explanation avoided punitive damages — but not liability.
Once a creditor receives notice of bankruptcy, any intentional collection act with knowledge of the stay is “willful,” even if caused by internal mistakes.
Sixteen calls and two emails were enough to produce a $5,000 sanction, despite the creditor stopping immediately once the problem was discovered.
That’s a useful reminder to creditors implementing new technology: automation errors are still your responsibility.
The Bottom Line
The district court’s decision leaves the bankruptcy court’s ruling intact:
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Willful stay violation: Yes
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Damages awarded: $5,000
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Punitive damages: No
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Recovery by non-obligor spouse: Not allowed
For practitioners, Terrance underscores the continuing strength of the automatic stay — but also the limits on who can claim damages when that stay is violated.
To read a copy of the transcript, please see:
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