By: Donald L Swanson
In less than a week, two separate appellate courts issue rulings on an individual’s right to damages under § 362(k) for willful violations of the automatic stay:
- in the first, a debtor recovers both emotional distress damages and punitive damages (issued July 10, 2026); and
- in the second, a creditor recovers attorney fee damages (issued July 16, 2026).
This article is the second of a two-part series, summarizing the second of the two opinions: Ayers v. Neugebauer (In re With Purpose, Inc.), Case No. 25-10572 (5th Cir., decided July 16, 2026).
What follows is a summary of the Ayers v Neugebauer opinion.
Facts
Debtor, a financial technology start-up, files a voluntary Chapter 7 bankruptcy.
Disputes around the collapse of Debtor’s business had been percolating before the bankruptcy filing, between a Co-Founder (who is also a creditor of the Debtor) and various Investors.
One of the disputes is a pre-petition arbitration in which Investors pursue a deposition of Co-Founder, and such pursuit extends past Debtor’s bankruptcy filing.
Issues
This appeal considers whether Investors’ post-petition pursuit of Co-Founder’s deposition in the arbitration violates the automatic bankruptcy stay in Debtor’s Chapter 7 bankruptcy case and what damages Co-Founder can recover.
The issues in this appeal are:
- whether Co-Founder has prudential standing to pursue the claim against Investors;
- whether Investors willfully violated the automatic stay; and
- whether the Bankruptcy Court erred in the amount of damages it imposed for this violation.
Standing?
Investors argue that Co-Founder does not have standing to pursue the stay violation claim, because, (i) Co-Founder’s role as a creditor was not the source of his injury, and (ii) he falls outside the zone of interests that the automatic stay provision is intended to protect.
The Fifth Circuit disagrees because, (i) a creditor can sue to enforce the automatic stay, (ii) the parties agree that Co-Founder is a creditor of Debtor, and (iii) therefore, Co-Founder can enforce the automatic stay.
Investors contest this simple logic by suggesting that the Investors’ claims did not affect the rights of the creditors. But at least one of the claims belongs to Debtor’s bankruptcy estate and, therefore, has a direct impact on creditors’ recovery.
Further, Co-Founder falls within the plain language of § 362(k), which says: “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees.”
Co-Founder expended substantial resources dealing with the willful violation of the automatic stay, which is a classic pocketbook injury sufficient to give Co-Founder standing. Thus, Co-Founder can recover damages.
Willful Violation?
To establish an actionable violation of the automatic stay, Co-Founder must show that:
- Investors knew of the existence of the automatic stay;
- Investors’ actions were willful; and
- Investors’ actions violated the automatic stay.
The first two elements are not meaningfully in dispute.
First, Investors knew about the automatic stay because they notified the arbitrator of its existence and stopped pursuing their claims against Debtor.
Second, Investors do not challenge the willfulness prong—nor could they. Willfulness only requires knowledge of the stay and intent to take the action that violates the stay: specific intent to violate the stay is not required. And Investors’ actions occurred after they had knowledge of the automatic stay.
Thus, the loadbearing question is whether Investors’ actions violated the automatic stay. We hold that they do:
- their breach-of-fiduciary-duty claim, filed before the bankruptcy began, arose out of duties that Co-Founder owed, and fiduciary-duty claims are property of the bankruptcy estate and subject to the automatic stay;
- Investors implicitly acknowledged that the estate controls their breach-of-fiduciary-duty claim when they agreed to dismiss it in coordination with the estate—yet, they still pursued this claim, among others, after the automatic stay went into effect by attempting to depose Co-Founder thereon; and .
- Investors, therefore, acted “to exercise control over property of the estate,” which violates the automatic stay (§ 362(a)(3)).
Because Investors knew of the automatic stay and willfully violated it, we affirm the bankruptcy court’s decision to award damages.
Damages Amount?
Investors argue that the amount of attorneys’ fees awarded as damages should be substantially reduced.
We disagree because:
- attorney’s fees incurred in enforcing the automatic stay are not only available to Co-Founder as damages under § 362(k), such damages are mandatory (“an individual injured by any willful violation of a stay . . . shall recover actual damages” (emphasis added));
- Investors levied most of their amount-of-billing complaints in the bankruptcy court (including unrelated work listed on the bills, the emergency nature of the work, duplicative staffing, and the possibility that the costs would have been incurred regardless), and the Bankruptcy Court clearly took them into account—by reviewing the billing “line-by-line,” discounting for line items that reflected unrelated tasks, and halving the amount for duplicative staffing; and
- Investors have not pointed to anything suggesting that the bankruptcy court clearly erred in its incorporation of their suggestions.
Investors add one further argument: that fees associated with Co-Founder’s state-court lawsuit should not have been included in the award. But Co-Founder’s state-court lawsuit attempted to stay the arbitration that Investors had pursued in violation of the automatic stay. And Co-Founder would not have needed to pursue a state-law stay had the Ayers parties abided by the automatic stay.
The Bankruptcy Court therefore did not clearly err in awarding attorneys’ fees from the state-court lawsuit as part of the “actual damages” associated with Investors’ violation of the automatic stay.
Conclusion
Very interesting.
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