## Facts

- Penny H. Flynn filed a Chapter 13 petition on April 17, 1992.
- The IRS had notice of the bankruptcy, filed proofs of claim on August 26, 1992, and was provided for under a plan confirmed on November 19, 1992.
- In January 1993, after confirmation, the IRS served a notice of levy on Flynn’s checking account at NationsBank, causing the bank to freeze the account pending release or expiration of a 21-day holding period.
- Flynn contacted the IRS, and an employee acknowledged the levy should not have issued because of the bankruptcy and stated a release would be issued.
- Although the IRS prepared a release, administrative and transmission delays meant the bank did not fully lift the freeze until several days later.
- During the freeze, Flynn suffered returned checks, fees, and public embarrassment, including a refused grocery check, and she cancelled a child’s birthday celebration.
- Flynn filed an adversary proceeding alleging a willful violation of the automatic stay and sought actual damages, emotional-distress damages, attorney’s fees, and punitive damages.

## Issues

1. Whether the IRS’s post-petition levy and continued account freeze constituted a willful violation of the automatic stay under 11 U.S.C. § 362(h) (now § 362(k)).
2. What categories of damages are recoverable for such a violation, including out-of-pocket losses, emotional distress, attorney’s fees, and punitive damages.

## Decision

- The court held the IRS willfully violated the automatic stay by issuing the post-petition levy and by failing to promptly effectuate an effective release once the error was identified.
- The court awarded actual damages for financial losses caused by the freeze and resulting returned checks and charges.
- The court awarded compensatory damages for emotional distress based on Flynn’s credible testimony of anxiety, humiliation, and disruption of family activities.
- The court awarded attorney’s fees incurred in pursuing relief for the stay violation.
- The court awarded punitive damages based on the IRS’s institutional collection practices and the need to deter similar conduct.

## Legal Principles

- A stay violation is “willful” when the creditor has knowledge of the bankruptcy and intentionally commits the act that violates the stay; specific intent to violate the law is not required.
- Internal administrative mistakes (including computerized processing or failures to communicate bankruptcy status within an organization) do not excuse a violation.
- Once a creditor learns its collection activity violates the stay, it has an affirmative duty to take effective, prompt steps to undo the violation; delay may constitute a continuing willful violation.
- “Actual damages” under § 362(h)/(k) may include out-of-pocket financial loss, emotional-distress damages, and reasonable attorney’s fees when causally linked to the violation.
- Punitive damages may be imposed for conduct reflecting reckless or callous disregard of the stay, particularly to deter repeat or institutional violators.

## Conclusion

The bankruptcy court found the IRS’s post-petition levy and delayed release of a resulting bank-account freeze were willful violations of the automatic stay and awarded the debtor actual damages, emotional-distress damages, attorney’s fees, and punitive damages to compensate injury and deter similar future conduct.


Flynn v. Internal Revenue Serv. (In re Flynn), 169 B.R. 1007 (Bankr. S.D. Ga. 1994)