The Discharge

Author:Gregory Germain
Pages:294-330
 
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Chapter 11: The Discharge
11.1. The Discharge Order
The primary benefit of Chapter 7 bankruptcy to most individual debtors is the discharge.
The discharge gives the debtor a fresh start free from the obligation to pay his or her prepetition
debts. Unless the debtor is denied a discharge or the debt is not discharged, the claims that remain
unpaid after the Chapter 7 distribution from the bankruptcy estate are discharged.
Section 524 of the Bankruptcy Code takes over after discharge where the automatic stay
left off during the bankruptcy case. The automatic stay terminates upon the grant of a discharge.
11 U.S.C. § 362(c)(2)(C). Section 524 imposes an injunction against filing or continuing a suit to
collect a discharged debt, or taking any other act to collect a discharged debt from the debtor or
from the debtor’s property on account of the debtor’s personal liability for the debt. Note that
Section 524 does not enjoin actions to foreclose prepetition liens that pass through bankruptcy
only the debtor’s “personal liability” for the debt is discharged. Only the debtor who filed the
bankruptcy is discharged. Third parties (such as co-debtors and guarantors) who are jointly,
severally or partially liable for the debt with the debtor remain liable. 11 U.S.C. § 524(e).
Violation of the post-discharge injunction is prosecuted in the same way as violations of
the automatic stay. A creditor who violates the post discharge injunction is in contempt of court.
In a state court lawsuit, the debtor must raise the discharge as an affirmative defense under state
law or it is deemed waived. Alternatively, Debtors can reopen their bankruptcy cases (if they have
been closed) and seek to hold the creditor in contempt of court for violating the post-discharge
injunction.
11.2. Cases on Violation of the Discharge Order
11.2.1.1. IN RE ANDRUS, 189 B.R. 413 (N.D. Ill. 1995)
Stanley Stann appeals an order of the bankruptcy court finding him in civil contempt and
directing him to pay remedial and compensatory damages. We affirm the decision of the
bankruptcy court.
The debtors obtained an Order of Discharge on June 24, 1993. In February or March of
1995 Stann decided to post a large sign near the debtors house reading, "GENE ANDRUS,
WHERE'S MY MONEY?" The debtors immediately filed a motion for contempt before the
bankruptcy court, and Stann agreed to take down the sign. The parties subsequently entered an
agreed Order for Injunctive Relief and Dismissal of Proceedings, which specifically enjoined "the
commencement or continuation of any action, the employment of any process, or an act, to collect,
recover or offset" the discharged debt. The order also specifically referred to the injunction
imposed by 11 U.S.C. § 524 against attempts to collect a discharged debt.
Stann apparently was not deterred by this order or the statutory injunction. Soon after
resolving the dispute over the first sign, Stann posted a second sign on his property which is
two doors down from the debtors' house declaring, "GENE ANDRUS WENT BANKRUPT!
HE DIDN'T PAY HIS BILLS. HE IS A DEADBEAT! THIS IS A PUBLIC SERVICE
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ANNOUNCEMENT." The signs were not the only evidence of Stann's disappointment with the
debtors; indeed, the bankruptcy court found them to be merely part of a larger pattern of
misconduct intended to pressure the debtors into paying the discharged debt. On February 9, 1995,
Stann left a harassing and vulgar message on the Andrus's answering machine, in which Stann
threatened to ruin Eugene Andrus's reputation in the community unless he repaid the debt.
4
On June 8, 1995, Stann approached the debtors in their car and repeatedly asked them to
repay the money they owed him.
5
On July 3, 1995, Stann shouted to Ms. Andrus from his yard:
Who do you think you are? Your husband is a deadbeat. I've told the
whole Ukrainian community about you. You're just off the boat.
You think that that attorney of yours is going to protect you? Your
attorney knows nothing. Get yourself a better attorney. No court is
going to protect you. You get that deadbeat husband of yours. I want
my money. I want Gene. I want my money.
The following da y Stann approached the Andruses and offered to fight Gene Andrus for
the money:
You're a deadbeat. I want my money. Let's go. I'll beat it out of you.
Let's go fight over it. I'm going to beat the shit out of you. And if
you win, Gene because you're such a faggot you're not going to
win but if you win, I'll drop the $20,000.
The Andruses brought a civil contempt action against Stann pursuant to Fed. R.Bankr.P.
9020, alleging that he violated the injunction in the Discharge Order, as well as 11 U.S.C. §
524(a)(2). After an evidentiary hearing, during which Stann corroborated most of the testimony
offered by Ms. Andrus, Judge Schmetterer found that Stann had willfully violated the injunction
imposed by § 524(a)(2) by engaging a course of conduct intended to force the payment of a
discharged debt. The bankruptcy court also found that the signs posted by Stann did not constitute
protected speech under the First Amendment, and thus could provide the basis for a finding of
contempt. The court ordered Stann to pay remedial and compensatory damages, and directed him
to remove the sign posted on his property, although it did not prohibit Stann from engaging in
protected speech in the future.
Stann raises a single issue in this appeal: Did the bankruptcy court's interpretation of §
524(a)(2) and its finding of contempt "abridg[e] the freedom of speech" guaranteed by the First
Amendment to the United States Constitution? Although wary of injunctions restricting speech,
4
“Stan Stann here (parts inaudible) to return my call so now we're going to have to get real embarrassing. Once I start
the ball rolling on these things, Gene, I ain't going to f____g talk to you anymore. I would appreciate the courtesy of
... a call back, otherwise we're going to start making your life real interesting. And, hey, you're bringing this all on
yourself, but we're going to let the whole world know what a cheap son of a b itch you are. So I suggest that you get
in touch with me; otherwise, once I start the moving this time on it, banners and the whole thing, the whole shot, you're
going to be ashamed to even come home because everyone on this lake is going to know what a f____g deadbeat you
are. So you'd better make peace with me fairly quickly, guy.”
5
Ms. Andrus testified that Stann said: “I want my f___ing money, I want my mone y. Why do you f___ with me? ...
I'm going to get my money. Your faggot husband. No one is going to protect you. Wait until you throw another party.
You think you're going to have another party in your house? You just wait and see.”
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and mindful of the importance of the First Amendment in civic life, we nonetheless conclude that
the contempt order issued in this case did not run afoul of the First Amendment.
At the outset we observe that the injunction and contempt order were directed at conduct
that is, attempting to collect a discharged debt. The fact that Stann's conduct contained a
"communicative element" does not necessarily render it protected speech under the First
Amendment. . . . Proper enforcement of the Bankruptcy Code would be seriously undermined if
courts could not enjoin efforts at collecting discharged debts and punish those who ignored court
orders.
However, even assuming arguendo that the injunction and contempt order issued by the
bankruptcy court were directed at pure speech, we still do not find them violative of the First
Amendment. When evaluating a content-neutral injunction such as the one embodied in § 524
and the Discharge Order[7] we ask "whether the challenged provisions of the injunction burden
no more than necessary to serve a significant government interest." We discern two significant
governmental interests implicated by Stann's conduct: the power of the courts to enforce and
protect their judicial process, and the ability of the Bankruptcy Code to protect debtors. The former
has long been recognized as significant component in the effective administration of justice, and
can justify the fashioning of effective remedies that incidentally implicate speech.
In sum, we believe that the contempt order and injunction satisfied the requirements of
O'Brien and were therefore constitutional. Alternatively, even if these restrictions implicated pure
speech, we find that they did not burden more speech than necessary to serve the significant
government interests at risk. Accordingly, we affirm the contempt order of the bankruptcy court.
It is so ordered.
11.3. Denial of Discharge
There are 5 ways in which the debtor can be denied a discharge entirely.
Bad Acts. First, as we have already seen in connection with debtors who convert excessive
amounts of non-exempt to exempt property, the debtor can be denied a discharge for bad
prepetition or post-petition conduct. 11 U.S.C. §§ 727(a)(2) (a)(7). These rules apply to actual
intent fraudulent transfers before or after bankruptcy, destroying or falsifying records, making a
false oath, failing to explain satisfactorily the loss of assets, and failing to obey court orders. Courts
have substantial discretion when bad acts are shown to determine whether the acts justify denial
of discharge, and generally impose a high standard of proof for denial. Creditors seeking denial of
discharge must file a complaint for denial of discharge within 60 days after the first meeting of
creditors. Bankruptcy Rule 4004(a).
Non-Individuals. Second, only individuals non-entities are entitled to a Chapter 7
discharge. 11 U.S.C. § 707(a)(1). This is because entities are non-functioning shells after
bankruptcy (all assets have been liquidated and business operations have been terminated). There
is no need for a non-functioning shell to receive a discharge because it is, for all intents and
purposes, dead. The proprietors of the non-functioning shell should follow the dictates of state law
to terminate the entity. An individual has a life after bankruptcy, and freed from the burden of
excessive debt can begin life with a financial fresh start due to the discharge. Entities do receive a

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