Chapter 11, F. Modification of the Post-Confirmation Injunction

• Jurisdiction: United States

F. Modification of the Post-Confirmation Injunction

Generally, the post-discharge injunction does not prohibit a creditor from proceeding against the debtor nominally for the purposes of establishing liability as a prerequisite to proceeding against the debtor's insurer.³²⁸ However, the issue still remains as to whether the creditor must first file a motion to modify the post-discharge injunction to proceed with this nominal suit, and also whether the claimant must indicate to the nonbankruptcy court that it is merely pursuing the debtor nominally.

There are four different approaches the federal courts take as to whether modification in bankruptcy court is necessary.³²⁹ First, some courts deny motions to modify the discharge injunction as moot — rendering them completely unnecessary.³³⁰ This approach appears to have been adopted by the Second and Ninth Circuits.³³¹ The effect of discharge under 11 U.S.C. § 524(a) operates as an injunction protecting the debtor from personal liability. Even if the debtor is a nominal defendant in the litigation, there would be no "personal liability of the debtor."³³² However, 11 U.S.C. § 524(e) limits the benefit of discharge to the debtor and states that the "discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt." Thus, these cases appear to allow a claimant to pursue a claim against the debtor without first obtaining a modification of the injunction, but only to establish liability as a prerequisite to recovery from the debtor's insurer. Under this approach, there seems to be a distinction between chapter 7 and chapter 11. Significantly, a chapter 11 typically contains a plan injunction and order of confirmation that must be considered.³³³

Second, other courts similarly recognize that a motion to modify is not required, but out of "an abundance of caution," the court will entertain such a motion.³³⁴ The third approach is similar. Under this approach, courts grant such motions reasoning that some attorneys or state trial courts may find "comfort" in a modification order.³³⁵ Nevertheless, these courts do not require modification.³³⁶ A nuance under this third approach, however, is that the party seeking modification must strictly comply with all procedural requirements, including the payment of any statutory fees that accompany a motion to reopen a bankruptcy case.³³⁷

Finally, other courts require a claimant to first move to modify the...