Is it appropriate for a creditor to persuade church elders to excommunicate a church member who declared bankruptcy?
No, ruled a federal appeals court. A church member filed a bankruptcy petition, resulting in a court order prohibiting any attempts by any creditors to collect their debts against him. One creditor contacted the member's church elders and attempted to persuade them to excommunicate the member for filing the bankruptcy petition (which the creditor claimed to be unscriptural conduct).
The debtor sued the creditor for violating the court's prohibition of any effort to collect the debt, and the court awarded punitive damages to the church member. Federal law permits a bankrupt debtor to sue creditors who violate such court orders, and punitive damages may be awarded in appropriate circumstances. The court had "no trouble" in awarding punitive damages against the creditor in this case.
"In particular, we point to the efforts by the creditor … to have the debtor excommunicated from his church. Thus, the creditor not only willfully failed to fulfill its obligations under the [bankruptcy] code, it brazenly attempted to punish the debtor for pursuing his rights given by the code. Such reprehensible conduct more than adequately proves the 'appropriate circumstances' necessary for punitive damages." This case illustrates the danger that creditors face when they attempt to collect a debt from a bankrupt debtor by seeking the help of church leaders. In re Knaus, 889 F.2d 772 (8th Cir. 1989).