Walking the Balance Beam of the Bankruptcy Code's Discharge Injunction, 0518 ALBJ, 87 J. Kan. Bar Assn 5, 38 (2018)

Author:Teresa M. Schreffler and The Honorable Janice Miller Karlin, Chief Judge U.S. Bankruptcy Court, District of Kansas
Position::87 J. Kan. Bar Assn 5, 38 (2018)
 
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Walking the Balance Beam of the Bankruptcy Code's Discharge Injunction

87 J. Kan. Bar Assn 5, 38 (2018)

Kansas Bar Journal

May, 2018

          Teresa M. Schreffler and The Honorable Janice Miller Karlin, Chief Judge U.S. Bankruptcy Court, District of Kansas

         When a debtor files bankruptcy, whether represented by counsel or not, the debtor understands that the automatic stay and the discharge injunction are the “good” parts of bankruptcy. Debtors certainly may not understand the exact contours of these legalities, but they know that fling bankruptcy brings them a stay of collection from their creditors and ultimately a discharge of most of their debts. Those are the payoffs.

         There is plenty of “bad” that goes along with bankruptcy as well, of course, but practitioners can rest assured that these “good” parts, perhaps the most important benefits, are fiercely protected by the courts. In fact, one local bankruptcy judge has called the discharge injunction “the backbone of an honest but unfortunate debtor’s fresh start.”1 Obviously, you do what you can to protect your backbone.

         For non-bankruptcy practitioners, seeing a notice of bankruptcy can (and should) cause you to immediately freeze. When an attorney is not well versed on the nuances of the automatic stay and the discharge injunction, the contours of the Bankruptcy Code can seem daunting. Especially regarding the discharge injunction, there is a common misconception about what a bankruptcy discharge means for creditor clients. What avenues, if any, remain for communication or even collection? What is prohibited? What is permitted? Two mistakes are often made at opposite ends of the spectrum: 1) the attorney does nothing when he or she could have actually proceeded, or 2) the attorney proceeds and runs afoul of the Bankruptcy Code. And there are a lot of situations in between these extremes as well. This article attempts to provide general practitioners who do not regularly practice in bankruptcy court an overview of the discharge injunction, a review of some recent discharge injunction violations, and the status of the law in the Tenth Circuit on what relief can be granted for violations and which court(s) have jurisdiction to grant the relief. It then provides tips for attorneys representing either debtors or creditors.

         I. Bankruptcy’s Discharge Injunction versus the Automatic Stay

         A. A Review of the Automatic Stay

         As noted above, bankruptcy can seem like a statutory maze and both the discharge injunction and the automatic stay are statutory creatures at heart. This article is focused on the intricacies of the discharge injunction, but to understand the discharge injunction, a practitioner must first understand how it is different from the automatic stay.

         Bankruptcy’s automatic stay is governed by 11 U.S.C. § 362. Section 362 “automatically stays the commencement or continuation of a judicial proceeding against the debtor that was or could have been initiated before the fling of a bankruptcy petition.”2 The stay protects against a host of other things, in addition, and those are listed in the subsections of § 362(a). Essentially, any effort to recover on a claim against a debtor is stayed once the bankruptcy petition is fled.3

         Section 362, which establishes the automatic stay, is the central provision of the Bankruptcy Code. When a debtor files for bankruptcy, section 362 prevents creditors from taking further action against him except through the bankruptcy court. The stay protects debtors from harassment and also ensures that the debtor’s assets can be distributed in an orderly fashion, thus preserving the interests of the creditors as a group.4

         “Actions taken in violation of the automatic stay are void ab initio; that is, they are without legal effect.”5

         The automatic stay, however, does not “extinguish or discharge any debts;” it merely protects the “debtor from various collections efforts”6 while it is in effect. The “while it is in effect” language is important, as the automatic stay is in effect only for a statutorily prescribed time period. The automatic stay terminates upon the occurrence of any of a number of listed items in subsection (c) of § 362. Highly simplified, the most generally applicable are case closure, case dismissal, or the entry of discharge. But even this general rule is not universal because “entry of discharge” does not terminate the stay for actions against debtor’s non-exempt assets, as explained below. So it is admittedly complicated.

         Creditors can also seek relief from the automatic stay to prosecute their claims, under § 362(d) if they can show cause or a lack of equity in property that is not necessary to the debtor’s “effective reorganization.” Creditors must be careful to seek relief for any action prohibited by the automatic stay, however. A party who is willfully injured by a violation of the automatic stay can recover “actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”7

         B. How is the Discharge Injunction Different from the Automatic Stay?

         The discharge injunction, found statutorily in 11 U.S.C. § 524, “eventually replaces the automatic stay.”8 It applies only after the debtor has received a discharge. A bankruptcy discharge “voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under” the applicable chapter.9 The discharge injunction also “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]”10

         The discharge injunction is, therefore, broad. It applies to “any action to collect a discharged debt”11 against the debtor personally. It is unequivocal: the injunction “unambiguously voids past and future in personam judgments on discharged debts at any time obtained.”12 Small nuances exist, of course. For example, claims that are the subject of a pending adversary proceeding that seeks to have a debt declared nondischarge-able are still “‘presumptively discharged’ until the bankruptcy court makes a determination regarding dischargeability.”13 This means the creditor should take no steps to collect a debt, even after the debtor has received a general discharge, if there is a pending adversary concerning that debt.

         At the same time, because a discharge does not eliminate the right of a creditor to recover on a claim in rem, in other words, to enforce the security instrument that makes its claim secured up to the value of the collateral, the discharge injunction is precise in its application. It applies only to a debtor’s personal liability on a debt; it does not eliminate the underlying debt.14 Generally stated, the discharge injunction “bars efforts to collect personal debts from debtors after they have been discharged in bankruptcy,” but it does not impact a creditor’s in rem rights.15 For example, an action to foreclose a mortgage is not prohibited by the discharge injunction so long as the creditor makes no effort to collect its remaining debt directly against the debtor.16

         The discharge injunction also only applies to debts that are statutorily eligible for discharge, and not all debts are dischargeable. For example, 11 U.S.C. § 523(a)(4) prohibits the discharge of debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”17 Another example is student loans that fall within 11 U.S.C. § 523(a) (8)—which excludes many student loans from the automatic discharge unless the debtor can show “undue hardship.”18 In addition, any debt that arises after the date a bankruptcy petition is fled—a post petition liability—is not discharged.[19]

         Creditors must also be aware of the type of discharge a debtor has received, as some debts are dischargeable in a Chapter 13 case but not in a Chapter 7 case. In a Chapter 13 case, a debtor is entitled to a discharge “after full compliance,” meaning the debtor has completed making the payments required by a confirmed plan.[20] The full compliance discharge includes the discharge of non-support debts owed in relation to a divorce or property settlement, although these debts would be nondischargeable in a Chapter 7 case.21 Similarly, a full compliance Chapter 13 discharge could discharge a debt under 11 U.S.C. § 523(a)(6) for willful and malicious injury by the debtor to the property of another entity, whereas a debtor who obtains a different type of discharge under Chapter 13—a hardship discharge under 11 U.S.C. § 1328(b)—could still have to repay that debt if the creditor timely fled and prevailed on an adversary proceeding brought after it was notified that the debtor was seeking a hardship discharge.22

         And even if an underlying debt is discharged, a creditor may in limited circumstances still proceed with an action where the debtor is nominally involved. For example, “suits—even those brought to collect on debts a debtor has discharged—that formally name the debtor as a defendant but are brought to collect from a third party” are permitted.23 In addition, even if a debtor has been discharged, that will not prevent a party issuing a subpoena to that debtor to testify at a trial or to participate in discovery as a witness. Neither of those actions are prohibited by the discharge in-junction.24 Simply put, “requiring a debtor to bear such collateral burdens of litigation as those relating to discovery (as opposed to the actual defense of the action and potential liability for the judgment), does not run afoul of” the discharge injunction.25

         Other subsections of 11 U.S.C. § 524 also merit discussion. First, § 524(c) governs a process by which a debtor and creditor can agree for the debtor to retain personal liability for a debt that would otherwise be dischargeable in bankruptcy—and therefore subject to the discharge injunction. These agreements are called reaffirmation agreements and typically involve debts secured by collateral the debtor wishes to retain. Creditors must be careful, however. Section 524(c) requires that the reaffirmation agreement be made before the entry of discharge, requires certain, specific disclosures outlined in the statute, and dictates that the debtor either be fully advised by an attorney before the agreement is fled with the court or the court must conduct a hearing on the reaffirmation agreement and give certain additional disclosures. Section 524(c) “provides the sole authority under which a discharged debt may be reaffirmed and collected,” and it must be strictly complied with.26 A presumption of undue hardship applies to the agreement, under § 524(m), if a debtor’s “monthly income less the debtor’s monthly expenses” is “less than the scheduled payments on the reaffirmed debt,” although this subsection does not apply when the creditor is a credit union.

         A second subsection—§ 524(e)—states that “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.” This provision enables “a creditor to bring or continue an action directly against the debtor for the purpose of establishing the debtor’s liability when establishment of that liability is a prerequisite to recovery from another entity.”27 In other words, “[w]hile a discharge in bankruptcy precludes the continuation of an action against the debtor to the extent that the judgment determines the debtor’s personal liability as to any discharged debt, 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.”28 Section 524(e) applies when the creditor seeks “to bring or continue an action directly against the debtor for the purpose of establishing the debtor’s liability when . . . establishment of that liability is a prerequisite to recovery from another entity,”29 e.g., to collect from a co-debtor or from the debtor’s insurance company.

         Even this statutory exception has its limits, however. Section 524(e) “hinges upon the condition that the debtor would not be personally liable in a way that would interfere with the debtor’s fresh start in economic life.”30 One may be tempted to think that the costs of defense would be enough to constitute such “interference,” but courts have generally not so held. “Although defense costs incurred by a debtor could frustrate the fresh start, such costs standing alone have been rejected as a basis to find that the injunction bars such claims, in part because the realities of litigation are likely to compel [a] third party to defend the underlying action.”31 And finally, § 524(e) is automatic: a creditor need not seek to reopen a closed bankruptcy in order to file such actions or seek modification of the discharge injunction to proceed with a lawsuit under § 524(e).32

         A final subsection of the discharge injunction statute worth mentioning is § 524(i), applicable to long-term lenders, such as mortgage creditors, when the debtor has a confirmed bankruptcy plan. That subsection states: The willful failure of a creditor to credit payments received under a plan confirmed under this title, unless the order confirming the plan is revoked, the plan is i n default, or the creditor has not received payments required to be made under the plan in the manner required by the plan (including crediting the amounts required under the plan), shall constitute a violation of an injunction under subsection (a)(2) if the act of the creditor to collect and failure to credit payments in the manner required by the plan caused material injury to the debtor.

         Under § 524(i), the “willful failure to credit payments received under a confirmed plan constitutes a violation of the discharge injunction if such failure causes material injury to a debtor.”33 The remedy found in § 524(i) is “dependent upon the debtor having been granted a discharge,” and provides only a post-discharge remedy.34 An alleged violation of a loan modification agreement does not give rise to liability under § 524(i), because the loan modification is not a confirmed plan.35 The purpose of this provision is to sanction creditor activity that occurs pre-discharge, once the discharge injunction is effective.36 For example, if a mortgage creditor fails to properly credit Chapter 13 plan payments to postpetition mortgage payments, as specified in the plan, then the debtor has a post-discharge remedy if that mortgage creditor does not by the end of the case update its accounting to reflect that payments were applied in accordance with the plan.37

         Finally, in this lengthy discussion of exceptions and caveats, there is an “overarching exception” to what is allowed: if a debtor “proves the creditor acted in such a way as to coerce or harass the debtor improperly, i.e., so as to obtain payment of the discharged debt,” then a discharge injunction violation may be found.[38] The debtor must show, via an objective test, that “the creditor’s conduct had the practical, concrete effect of coercing payment of a discharged debt.”39 The creditor’s bad faith is not a required showing.40 On the other hand, the presence of a “procedural impropriety or error . . . will not give rise to a violation of the discharge injunction violation if the objective effect is not to coerce payment of a discharged debt.”41

         For this “overarching exception” to apply, the debtor must “establish that a creditor who has taken an action not overtly prohibited by § 524(a)(2) nevertheless violated the discharge injunction, but to do so the debtor must prove not merely that the creditor’s act is not what it appears to be, but that the act in question is one to collect a discharged debt in personam.”[42] For example, if a creditor who held a lien on a worthless vehicle refused to either permit a debtor to junk the vehicle or accept surrender, forcing the debtor to pay a loan the debtor had previously discharged, the creditor may be found to have willfully violated the discharge injunction, even though the creditor’s actions would not have technically violated 11 U.S.C. § 524(a).43

         Enough of the exceptions! What about enforcement? This will be discussed more in section III, but generally stated, the discharge injunction is automatic. It does not require a debtor to have taken any specific action, or followed any given procedure, to render a judgment void.[44] While this Article repeatedly refers to the statutory nature of the discharge injunction, the remedy for a violation is actually not statutorily based. Rather, § 524 “provides an equitable remedy” under a court’s contempt power.45 Specifically, bankruptcy courts enforce the discharge injunction using their general enforcement powers under 11 U.S.C. § 105(a), which allows a bankruptcy court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy Code. This provision grants “bankruptcy courts the power to sanction conduct abusive of the judicial process.”46

         To summarize, bankruptcy courts want to support a debtor’s fresh start after bankruptcy. But courts are limited in what they police by the contours of § 524—only actions specifically prohibited by that section are violations of the discharge injunction.47

         II. Examples of Discharge Injunction Violations

         Knowing the basics of the discharge injunction, it is helpful to look at a few applications. Recent cases show the importance of the specific language and tactics used to contact a debtor, and range from the run of the mill to the complicated.

         For example, in In re Carlson, the debtors received a discharge in their Chapter 7 bankruptcy in 2012.48 More than five years later, in 2017, the debtors fled a motion to reopen their bankruptcy case for the purpose of fling a contempt motion for a discharge injunction violation.49 The debtors alleged that their creditor had both received notice of their bankruptcy and participated in an adversary proceeding against them.50 The creditor had even agreed to entry of a final order that specified the future treatment of certain student loans.[51] Specifically, the parties agreed that $29,157 of the debtors’ student loan debt was not discharged, but the remainder owed to that creditor was discharged, including all interest, if the debtors timely made the agreed $300 monthly payments.52

         Despite this agreement, the creditor continued to charge the debtors interest, and issued tax forms to the debtors and the IRS showing the same.53 After the first instance of the charged interest appearing in tax forms, the debtors’ counsel specifically and repeatedly warned the creditor and its attorneys that they were in violation of the agreed order.54 Despite this, the debtors never received a response from the creditor, and the creditor continued to charge interest and submit tax forms so noting.55

         The debtors fled a motion seeking a show cause order directed to the creditor, requiring it to show cause why it should not be sanctioned for violation of the agreed order and why it should not be ordered to rectify the violation by fling corrected tax forms with the IRS.56 Finding that the debtors had shown cause, the court issued a show cause order and set the matter for hearing.57 The creditor did not appear. On the proffered facts, and after confirming proper service on the creditor, the bankruptcy court found the creditor in contempt.58 The creditor was ordered to correct and issue three years’ worth of tax forms to the appropriate taxing authorities and to provide an accounting of the application of all the debtors’ payments under their agreement.59 The debtors were awarded $3000 in actual damages plus reasonable attorney fees.60 While the court awarded no punitive damages, it did order (“as a deterrent”) that if the creditor issued any further incorrect tax documents, the creditor would be assessed $5000 for each incorrect document.61

         Another example from the District of Kansas is Gray v. Nuss-beck (In re Gray).62 In Gray, the debtor received a Chapter 7 discharge and then almost two years later, a creditor who was properly listed in the debtor’s case—and thus who received notice of the fling—nevertheless fled a state court petition and received a judgment against the debtor.63 The debtor apparently had entered into some sort of agreement/settlement with the creditor concerning the prepetition debt, but no party had fled a reaffirmation agreement with the court pursuant to 11 U.S.C. § 524(c).64 Despite raising his bankruptcy discharge as a defense in the state court, the state court rejected the defense because the creditor had alleged false representations in the debtor’s bankruptcy and a lack of notice—neither of which the bankruptcy court found to be accurate findings in the later contempt proceeding.65

         The bankruptcy court ultimately found, when the debtor sued the creditor in bankruptcy court for the claimed violation of the discharge injunction, that the complaint against the creditor stated enough that it could find that the state court judgment against the debtor was void, due to the discharge injunction. The purported agreement did not meet the strict requirements required for a valid reaffirmation agreement, and the court refused to enforce that agreement.66 The bankruptcy court rejected the creditor’s reliance on the Rooker-Feldman doctrine (“a jurisdictional prohibition on lower federal courts exercising appellate jurisdiction over state-court judgments”) and the full faith and credit statute (“a federal court must give to a state court judgment the same preclusive effect it has under state law unless there exists an express or implied exception”) because § 524 clearly rendered the state court action void.67 The bankruptcy court denied the creditor’s motion to dismiss and required the creditor to forthwith show cause why it should not enter a judgment for the debtor as to liability and schedule the issue of damages for trial.68

         Contrast the Gray case with a Tenth Circuit case: Jester v. Wells Fargo Bank N.A. (In re Jester).[69] In Jester, the debtors’ Chapter 7 bankruptcy was preceded by state court foreclosure proceedings by the debtors’ creditor.70 Post entry of discharge and closing of their bankruptcy case, one of the debtors (now divorced from the co-debtor) entered into a loan modification agreement with the creditor, wherein the debtor acknowledged the creditor’s security interest in the real property was valid and that if he failed to make monthly payments the property would be surrendered.71 The debtor ultimately failed to make payments under the new loan agreement, and the creditor fled a new state court foreclosure action against the debtor.72 The debtor attempted to reopen his bankruptcy case to claim, among other things, a discharge injunction violation against the creditor.[73]

         The Tenth Circuit affirmed the bankruptcy court’s decision to deny the debtor’s motion to reopen, as no relief could be granted to the debtor.74 The Circuit held that a loan modification agreement executed post discharge that does not attempt to make a debtor “personally liable for the discharged debt” is not a violation of the discharge injunction.75 The Circuit summed up its holding by stating that the debtor had: a fundamental misunderstanding of both what happened at the conclusion of the bankruptcy proceeding and what claims can be redressed by the bankruptcy court. He fails to appreciate the difference between the discharge of [the debtors’] personal obligation on the loan secured by the property and [the creditor’s] continued interest in the property via the security instrument. The former was discharged, the latter was not.76

         As a result, “the parties’ failure to reach a reaffirmation agreement in the bankruptcy proceedings had no effect on [the creditor’s] ability to foreclose on the property, with or without loan modification.”77

         The “fundamental misunderstanding” referred to in Jester is the reason for the different outcome in that case versus the Gray case. In Jester, it was clear that the creditor sought only to foreclosure its lien rights, not to obtain a personal judgment against the debtor. This distinction is what makes all the difference if creditors are seeking to collect on a discharged debt.

         And finally, a recent example—but with a much higher damages award than previously discussed—is Ocwen Loan Servicing LLC v. Marino (In re Marino).78 In the Marino case, the debtors fled a Chapter 7 bankruptcy petition and prior to discharge surrendered their real property to their mortgage creditor.79 Following their discharge, the servicer for the debtors’ mortgage holder began calling and mailing correspondence to the debtors—including account statements and escrow statements. Admittedly, some of the written correspondence included a disclaimer at the bottom noting that if the debtors were in bankruptcy or had received a discharge, the information contained therein was “for informational purposes only” and “not an attempt to collect a pre-petition or discharged debt.”80 The debtors reopened their bankruptcy case, and sought damages for each piece of written correspondence they received.81

         After an evidentiary hearing when the bankruptcy court also heard testimony about the servicer calling the debtors three to five times a day, the bankruptcy court awarded the debtors $119,000 in emotional distress damages.82 On appeal, the Ninth Circuit BAP confirmed that the loan servicer’s communications were far more than needed to protect or enforce their lien rights, and that even if individual letters were non-violative, the cumulative effect “created the perception” that the debtors needed to pay the debt.83 The generic disclaimer language on some of the letters was found to be completely ineffectual.84 The case is currently on appeal to the Ninth Circuit Court of Appeals, but it demonstrates that once a debtor has received a discharge, a creditor must be especially careful in proceeding. The Ninth Circuit BAP was clear that any post-discharge communication must show no intent to collect a discharged debt, and confusing disclaimers do not provide a defense.

         III. What Relief Can be Granted for Violations of the Discharge Injunction and which Courts Have Jurisdiction to Grant Relief

         What sort of damages can counsel contemplate for potential discharge injunction violations, and where can those causes of action be pursued? There is no express cause of action for damages for a discharge injunction violation,[85] but that does not mean there is no remedy. Rather, as discussed above, a debtor may file a motion to sanction a creditor for violating the discharge injunction under the bankruptcy court’s civil contempt power found in 11 U.S.C. § 105(a).86 In general, appellate courts review determinations of violations of the discharge injunction as questions of law, reviewed de novo and “[d]amages awarded as sanctions are reviewed for abuse of discretion.”87

         The cause of action need not be exclusively fled in the bankruptcy court, however. “[A]lthough jurisdiction to determine which debts are excepted from discharge generally resides in the bankruptcy court, other courts, such as the district court, have jurisdiction to consider the effect of the discharge.”88 In addition, the request to sanction a creditor for a discharge injunction can be made via motion in the main bankruptcy case, or through an adversary proceeding.89 Regardless of location or procedural choice, the “debtor bears the burden of proving that the creditor willfully violated the discharge injunction by clear and convincing evidence.”90

         A willful violation is one that is “volitional and deliberate as opposed to unintentional or accidental.”91 As mentioned above, a creditor’s bad faith is not required for this analysis, although the debtor must show the creditor intended to commit the act in question.92 The discharge injunction violation “inquiry is objective; the question is whether the creditor’s conduct had the practical, concrete effect of coercing payment of a discharged debt,” and the creditor’s good or bad faith is irrelevant.93 Certain actions “are facially impermissible,” such as “dunning letters, collection calls, and collection actions.”94 Other acts, such as a creditor’s failure to update reported information to a credit reporting bureau to reflect a bankruptcy discharge, depends on whether the “act” of failing to update fails the “objective effect” test.[95]

         Although the damages awarded are always dependent on the facts of each case, “[b]ankruptcy courts generally award actual damages, attorney fees, and punitive damages as sanctions for willful violations of the discharge injunction.”96 Actual damages require proof of actual injury.97 Courts have awarded damages for lost wages while the debtor was meeting with an attorney or attending court hearings,98 payments made by debtors that were coerced,99 monetary amounts per day due to delays in marketing and sale of property improperly encumbered by liens,100 the value of property improperly taken from a debtor,[101] costs of traveling to a court hearing, etc. Attorney fee awards will obviously be dependent on the particular facts of each case as well. Whether to grant an award for attorney’s fees incurred in prosecuting the discharge violation, and the amount awarded, are discretionary decisions of the court awarding them, and are assessed based on what is “just and reasonable.”102

         Courts are more reluctant to award punitive damages than actual damages. There are two different tests used by courts to determine if a punitive damages award is appropriate for a discharge injunction violation. First, some courts determine that if the “violation is willful or in reckless disregard of the law, punitive damages are proper. A creditor may be assessed punitive damages if it knew of the federally protected right and acted intentionally or with reckless disregard of that right.”103 A second test is “slightly different,” and “considers (i) the defendant’s conduct, (ii) the defendant’s ability to pay, (iii) the motives for the defendant’s actions, and (iv) any provocation by the debtor.”104 Punitive damages may be monetary or non-monetary.105

         Determining if an award of punitive damages is appropriate also requires consideration of procedural and substantive constitutional limitations on punitive damages, because “due process prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.”106 To determine whether these constitutional limitations are met, courts must look at: “1) the degree of reprehensibility of the defendant’s action; 2) the disparity between the actual or potential harm suffered b y the plaintiff and the punitive damage award; and 3) the difference between the punitive damage award and the civil penalties authorized or imposed in comparable cases.”107 Regarding the second factor, awards must generally be in the single digit ratio between punitive and compensatory damages, although compensatory damages include attorney fees.[108] So if actual damages are $1000 for lost wages, and the attorney fee award is $15,000, the total compensatory damages by which to compare punitive damages would be $16,000. Appellate courts review de novo the constitutionality of punitive damage awards.109

         IV. Practice Pointers for Creditors’ Counsel

         The intent of this article is not to paralyze creditors or their counsel; rather, it is to inform of what is permissible. There are ways for a creditor who needs to have some contact with a debtor post discharge to do so without crossing the line of a discharge injunction violation.

         First, creditors should remember in all of their correspondence that the intent to collect a discharged debt is what controls when considering violations of the discharge injunction.110 If a creditor tailors its correspondence to the debtor and is explicitly clear that it is not attempting to collect a discharged debt, but is, e.g., only corresponding regarding its in rem rights in a piece of property, then there will be no discharge injunction violation. But vague disclaimers that are inconsistent with other parts of the correspondence that appear to seek repayment directly from the debtor, will not immunize the creditor.

         Second, timing is critical. A recent, local example is In re Ledin.111 In Ledin, a creditor garnished the future bankruptcy debtor’s bank account and attached several hundred dollars.112 The debtor then fled a Chapter 7 bankruptcy petition and received a discharge.113 Post discharge, the debtor sued the creditor in state court to seek a release of the garnished funds.114 When the state court ordered the funds released to the debtor ex parte, the creditor sought an order asking that the funds be returned, and the debtor responded with an allegation that the request was an attempt to collect a discharged, prepetition debt.115

         The bankruptcy court found that there was no discharge injunction violation, because the discharge injunction did not prohibit the creditor from enforcing its prepetition garnishment lien that had survived the debtor’s Chapter 7 discharge.116 That is because in Kansas, the creditor’s garnishment order created a lien on the debtor’s deposits that were in the hands of the debtor’s bank when he fled his bankruptcy petition.117 As a result, the creditor held a valid prepetition lien on the funds that the bank held on deposit.118 And while those garnished funds continued to first be property of debtor’s bankruptcy estate and then again the debtor’s property when the Chapter 7 trustee abandoned the asset,119 those funds were nevertheless still subject to the creditor’s lien because liens not avoided during bankruptcy administration “ride through” the bankruptcy.[120] Because nothing in § 524 precluded the creditor from enforcing its surviving prepetition garnishment lien after the asset was abandoned by the trustee, the Court denied the debtor’s motion for a finding of contempt.121

         This timing issue is exactly why creditor’s counsel needs to know the exact sequence of events surrounding the debt, the debtor’s bankruptcy, and the debtor’s discharge. If the garnishment had not attached prepetition, or if the creditor had attempted to obtain the garnished funds after discharge but before the trustee had abandoned the asset, the result in the Ledin case would have been different.

         In a similar vein, failure to understand the timing issues causes some creditor’s counsel to wait longer than the law requires before proceeding post-discharge. To illustrate, take the typical situation of a debtor who exempts a personal residence and receives a discharge after no one objects to the exemption. If a creditor then files a motion for relief from stay to foreclose the mortgage against that home, the motion will likely be denied as moot. The creditor will have needlessly spent $181, the amount currently charged to file a motion for relief from stay, because the discharge eliminated the stay of in rem actions to recover against exempted property under 11 U.S.C. § 362(c)(2)(C). Again, timing is everything.

         But how can a creditor protect itself if it is unsure whether it continues to be stayed or enjoined? A creditor can seek either a “comfort order” or a modification of the discharge injunction, if circumstances so warrant. For example, in Buke, LLC v. Eastburg (In re Eastburg),122 the creditor fled a state court petition for conversion and fraud, among other things, and the debtors thereafter fled a Chapter 7 bankruptcy petition.123 The creditor responded by timely fling an adversary complaint seeking a finding that its state court claims were not dischargeable under 11 U.S.C. § 523(a)(2) (for debts obtained by “false pretenses, a false representation, or actual fraud”) or under (a)(4) (debts “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny”).124 When the debtors received their general discharge in their Chapter 7 case, the creditor amended its adversary complaint to also seek both a declaratory judgment that the discharge injunction did not apply to its claims, or, in the alternative, modification of the discharge injunction to permit prosecution of its state court action.125

         On appeal, the Tenth Circuit concluded that although the discharge injunction was probably applicable while the non-dischargeability proceeding was pending—and thus a comfort order was not appropriate, the bankruptcy court had the discretion to modify the discharge injunction to make clear that the creditor could recommence its state court action against debtors without risk of sanctions.126 Although generally modification of a discharge injunction is done in cases that “involve a creditor’s request to proceed in state court against a debtor nominally with respect to liability, in order to collect or recover damages from a third party, such as an insurer,” it is also appropriate “to give a creditor permission to continue litigation against a debtor in state court.”127 As a result, the Tenth Circuit affirmed the modification in that case.

         Creditors should also be aware of the doctrine of recoupment, and how that may impact their options. “[U]nder the doctrine of recoupment, the discharge injunction does not prohibit a creditor’s defensive use of the discharged debt.”128 Generally stated, “recoupment is an equitable doctrine that allows one party to a transaction to withhold funds due another party when the debts arise out of the same transaction. In other words, the doctrine allows a creditor to recover a pre-petition debt out of payments owed to the debtor post-petition.”129

         The recoupment doctrine is fairly limited, however.[130] As stated, the debts must arise out of the same transaction, which means that “both debts must arise out of a single integrated transaction so that it would be inequitable for the debtor to enjoy the benefits of that transaction without also meeting its obligations.”131 If the recoupment doctrine applies, “then there is no ‘debt’ as defined in the Bankruptcy Code, and there is no violation of the injunction.”[132] Again, however, “courts narrowly construe the doctrine of recoupment because it violates the basic bankruptcy principle of equal distribution to creditors.”133 As a result, a bankruptcy court will “carefully consider the equities involved,” ensure the claims are “closely intertwined,” and make sure that “allowing the debtor to escape its obligation would be inequitable.”134 Despite these strictures, the recoupment doctrine may enable a creditor to bypass the discharge injunction under the correct set of facts.

         V. Practice Pointers for Debtors’ Counsel

         What should debtors’ counsel do when a discharge injunction violation is suspected? There are intermediary steps before involving the court, obviously. First, debtors’ counsel should always notify the creditor as soon as the violation is brought to counsel’s attention by sending a copy of the discharge order attached to a “back of” letter. Courts are reluctant to award (especially) punitive damages when one simple contact could have avoided those damages. Attaching a copy of the written correspondence warning the creditor to cease its actions to a later pleading seeking damages will both demonstrate the debtor’s good faith and potentially show that the creditor’s actions were willful. This could ultimately bolster the debtor’s claim for damages—again, especially punitive damages.

         Note that warning a creditor that its conduct constitutes a discharge injunction violation is not a prerequisite to the ultimate award of damages for such violation. In somewhat unusual circumstances in In re Peyrano,135 the creditor and debtor were involved in a state court dispute when the debtor fled bankruptcy and received his discharge.136 The court found that the creditor, either through actual notice or imputed notice, had notice of the debtor’s bankruptcy.137 The debtor did not, however, file a suggestion of bankruptcy notice in the pending state court action.138 The Tenth Circuit BAP found that this was immaterial, holding: “The Code does not require the fling of a suggestion of bankruptcy to effectuate the discharge injunction. The discharge injunction arises by operation of law upon entry of the discharge.”139 Again, however, it is a best practice to inform all actors—the creditor and the state court—of a bankruptcy and/or discharge as soon as possible.

         The second practice debtors’ counsel should adopt is to have clients not only retain all written correspondence from the creditor but to also separately document—contemporaneously when possible—every oral contact (telephone/text/in-person) from the creditor. These actions will become important when debtors’ counsel is attempting to prove damages for a discharge injunction violation. For example, in one of the cases discussed above, the court discussed at length the number of phone calls placed, the persons receiving those calls, the frequency of the calls, etc.140 The more frequent, and less convenient to a debtor, these contacts are, the easier it will be for debtors’ counsel to prove damages.

         Finally, all debtors’ counsel should ensure that notice is properly provided to any creditor served with a motion for an order to show cause why that creditor should not be held in contempt for a violation of the discharge order. Generally stated, civil contempt may be imposed as long as there is “notice and an opportunity to be heard.”141 Federal Rule of Bankruptcy Procedure 9020 governs contempt proceedings, and states that “Rule 9014 governs a motion for an order of contempt made by . . . a party in interest.” In turn, Rule 9014 governs the procedures for contested matters, and requires “reasonable notice and opportunity for hearing” and service as required for service of a complaint under Rule 7004.142 Rule 7004 requires service by the means specified in that rule: for individuals, first class mail is appropriate.143 Domestic or foreign corporations or partnerships, however, must be served by first class mail “to the attention of an officer, a managing o r general agent, or to any other agent authorized by appointment or by law to receive service of process.”144 And insured depository institutions must be served “by certified mail addressed to an officer of the institution.”145 In other words, the price of mailing may later make the difference in proving due process was met by the type of service made, so it is best to ensure proper service at the outset. A “belt and suspenders” approach is recommended. If there is any doubt who to serve, it is cheap insurance to serve the motion at multiple addresses and on multiple persons to later demonstrate that the creditor received due process by the notice received.

         VI. Conclusion

         Creditor and debtor counsel alike are justifiably concerned with the discharge injunction—and what post discharge interaction with a debtor the Bankruptcy Code permits. The cases indicate that while a creditor’s bad faith may not be dispositive, the creditor’s good faith will certainly go a long way in preventing or minimizing damages from a discharge injunction violation.


Notes:

[1] Gray v. Nussbeck (In re Gray), 573 B.R. 868, 872 (Bankr. D. Kan. 2017) (Berger, J.).

[2]

TW Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495, 496 (10th Cir. 2011) (citing 11 U.S.C. § 362(a)(1) (“a petition . . . operates as a stay, applicable to all entities, of . . . the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title”)).

[3]

Duran v. AmeriCredit Fin. Servs., Inc. (In re Duran), 483 F.3d 653, 655 (10th Cir. 2007). There are significant exceptions to this statement, of course. Many exceptions are listed in 11 U.S.C. § 362(b)—e.g., criminal actions (§ 362(b)(1)), establishing paternity (§ 362(b)(2)(A)(i)), etc. In addition, if debtors have had two or more dismissed cases under any Chapter within a year of fling their current case, the automatic stay does not take effect under § 362(c)(4) unless the debtor successfully moves to impose the stay. And not an exception to the automatic stay, but a limiting factor, is found in § 362(c)(3), which terminates the automatic stay as to the debtor on the thirtieth day after a petition is fled if that debtor has had a prior dismissed case within a year of fling, although again, the debtor can move to extend the stay.

[4]

Johnson v. Smith (In re Johnson), 575 F.3d 1079, 1083 (10th Cir. 2009) (internal quotation omitted). See also Rushton v. Bank of Utah (In re C.W. Mining Co.), 477 B.R. 176, 191 (B.A.P. 10th Cir. 2012) (“The automatic stay is intended to allow the debtor to attempt to repay his debts or reorganize his financial affairs by virtue of a respite from demanding creditors. It also protects creditors by prohibiting the dismembering of the bankruptcy estate. Thus, the automatic stay maintains the status quo so as to ensure that there is an orderly distribution of estate assets.”).

[5]

In re C.W. Mining Co., 477 B.R. at 191. The Tenth Circuit Bankruptcy Appellate Panel (“BAP”—the appellate court in the Tenth Circuit that hears appeals from the decisions of the bankruptcy courts from all districts in the Tenth Circuit) further stated: The effect of violating the automatic stay is to void the action, whatever the context. The only effect of violation of the automatic stay, other than the possibility of contempt, is the un-enforceability of any benefit the creditor obtained as a result of the violation. Where a transfer or transaction is voided as being in violation of the automatic stay, the proper remedy is to return the parties to the place each occupied prior to the violation of the stay. The Tenth Circuit has previously adopted this same position, holding that the relief for violating the automatic stay is to return the parties to the status quo before the stay violation occurred (including payment of attorneys fees incurred).

Id. at 192 (internal citations and quotations omitted).

[6]

Franklin Sav. Assoc. v. Office of Thrift Supervision, 31 F.3d 1020, 1022 (10th Cir. 1994) (internal quotations omitted). The stay applies to more than just collection efforts of course. For example, the fling of a bankruptcy stays a state divorce court’s property division. Morris v. Wright (In re Wright), 371 B.R. 472, 478 (Bankr. D. Kan. 2007) (finding a divorce decree void when the divorcing parties failed to request stay relief after one party fled for bankruptcy).

[7] 11 U.S.C. § 362(k)(1).

[8]

Gray v. Nussbeck (In re Gray), 573 B.R. 868, 876 (10th Cir. 2017).

[9] 11 U.S.C. § 524(a)(1).

[10] 11 U.S.C. § 524(a)(2).

[11]

In re Gray, 573 B.R. at 872 (emphasis added).

[12]

Id. (internal quotation marks omitted).

[13]

In re Robben, 562 B.R. 469, 475 (Bankr. D. Kan. 2017) (“[Claims which are the subject of an unresolved dischargeability complaint when a discharge is granted are ‘presumptively discharged’ until the bankruptcy court makes a determination regarding dischargeability.” (internal quotation omitted)). See also Buke, LLC v. Eastburg (In re Eastburg), 447 B.R. 624, 631–32 (B.A.P. 10th Cir. 2011) (interpreting 11 U.S.C. § 523(c), which states that nondischargeable debts under § 523(a)(2), (4), and (6) are discharged unless a court determines they should be excepted, “to mean that the described debts are ‘presumptively discharged’ until the bankruptcy court makes a determination regarding dischargeability” and finding “little authority” to support the alternate position).

[14]

See, e.g., Lunt v. The Peoples Bank (In re Lunt), 500 B.R. 9, 15 (D. Kan. 2013) (“A discharge in bankruptcy eradicates the debtor’s personal liability on the obligation, but it does not eliminate the underlying debt.”).

[15]

Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1304, 1308 n.6 (10th Cir. 2008) (“The discharge injunction prohibits efforts to collect a debt as a personal liability of the debtor, and thus in rem rights are not affected.” (internal quotation omitted)).

[16]

Jester v. Wells Fargo Bank N.A. (In re Jester), No. EO-15-002, 2015 WL 6389290, at *5 (B.A.P. 10th Cir. Oct. 22, 2015) (“Actions to collect against the debtor personally are enjoined. In contrast, in rem actions, which include actions to enforce a lien against encumbered property, are not prohibited by the discharge injunction.”); see also Sprague v. Williams (In re Van Winkle), ___ B.R. ___, 2018 WL 1659603, at *8 (B.A.P. 10th Cir. Apr. 3, 2018) (reversing the bankruptcy court’s determination that a creditor violated the discharge injunction because the creditor did not seek to hold the debtor personally liable for the judgment lien at issue).

[17] Debts that are statutorily ineligible for discharge may require a creditor to file an adversary proceeding to determine dischargeability. See Fed. R. Bankr. P. 4007 (governing procedure and time for fling complaints seeking a determination of the dischargeability of a debt; stating a deadline of 60 days after the first date set for the meeting of creditors in the debtor’s case). Failure to timely file an action may be fatal. See Walker v. Wilde (In re Walker), 927 F.2d 1138, 1145 (10th Cir. 1991) (holding that actual knowledge of a debtor’s bankruptcy barred a creditor from challenging the dischargeability of a claim months after the bar date for such claims).

[18]

See, e.g., In re Timmons, No. 11-20513-7, 2012 WL 4435522, at *3 (Bankr. D. Kan. Sept. 24, 2012) (stating that “§ 524(a) simply does not apply to any debt that falls within § 523(a)(8).”). The Timmons case went on to state: “although Sallie Mae’s declaration of default and acceleration of the Debtor’s student loan may impair her fresh start, the fact Congress made its debt nondischargeable means that Congress has determined that Sallie Mae’s interest in collecting the debt should override the Debtor’s interest in obtaining a fresh start.” Id. at *4.

[19]

In re Paul, 534 F.3d at 1306 n.4.

[20]

In re Okrepka, 533 B.R. 327, 333 (Bankr. D. Kan. 2015).

[21]

Id.

[22]

See Fed. R. Bankr. P. 4007(d) (setting time for fling a complaint under 11 U.S.C. § 523(a)(6) in a Chapter 13 case where a debtor has fled a motion for a hardship discharge under 11 U.S.C. § 1328(b)).

[23]

In re Paul, 534 F.3d at 1307 (holding that a suit by a former business partner against a debtor’s business, which nominally named the debtor, could continue without violating discharge injunction).

[24]

Id.

[25]

Id.

[26]

Gray v. Nussbeck (In re Gray), 573 B.R. 868, 872 (Bankr. D. Kan. 2017) (discussed further below, but holding that informal agreement between creditor and debtor that did not follow the strict requirements of § 524(c) was unenforceable). Leases that are assumed under 11 U.S.C. § 362(p)(2) would not fall under this restriction.

[27]

In re Robben, 562 B.R. 469, 479 (Bankr. D. Kan. 2017) (internal quotation marks omitted) (holding that modification of the discharge injunction is not required to bring an action nominally against a debtor in order to establish third party liability under § 524(e)).

[28]

Blackmon v. Crile, No. 05-1030-MLB, 2007 WL 121402, at *2 (D. Kan. Jan. 12, 2007) (internal citation omitted) (permitting suit against discharged debtor for purpose of establishing debtor’s employer’s liability).

[29]

In re Robben, 562 B.R. at 479 (internal quotation marks omitted).

[30]

Id.

[31]

Id. at 479–80.

[32]

Blackmon, 2007 WL 121402, at *2.

[33]

Santander Consumer, USA, Inc. v. Houlik (In re Houlik), 481 B.R. 661, 667 (B.A.P. 10th Cir. 2012).

[34]

Id. at 671.

[35]

Jester v. Wells Fargo Bank N.A. (In re Jester), No. 15-002, 2015 WL 6389290, at *8 (B.A.P. 10th Cir. Oct. 22, 2015).

[36]

In re Houlik, 481 B.R. at 671–72.

[37]

Id. A Chapter 13 debtor may have a remedy to rectify misapplied payments or dispute unnecessary fees in an ongoing case, see Fed. R. Bankr. P. 3002.1 (governing a creditor’s responsibilities with respect to claims secured by a debtor’s principal residence), but that is a different situation from the discharge injunction violation contemplated by § 524(i).

[38]

Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1308 (10th Cir. 2008) (internal quotation marks omitted).

[39]

Id.

[40]

Id.

[41]

Id. Cf. Sprague v. Williams (In re Van Winkle), ___ B.R. ___, 2018 WL 1659603, at *10 (B.A.P. 10th Cir. Apr. 3, 2018) (finding no discharge injunction violation, but finding a violation of the parties’ joint stipulated order, and concluding that damages may be appropriate because of the creditor’s “unnecessarily relentless pursuit” to collect a judgment lien).

[42]

In re Paul, 534 F.3d at 1308.

[43]

Id. at 1308–09 (citing and discussing the facts of Pratt v. Gen. Motors Acceptance Corp. (In re Pratt), 462 F.3d 14 (1st Cir. 2006)).

[44]

Collier on Bankruptcy ¶ 524.02[1], at 524–20 (Richard Levin & Henry J. Sommer eds., 16th ed.) (“Section 524(a) is meant to operate automatically, with no need for the debtor to assert the discharge to render the judgment void.”).

[45]

Gray v. Nussbeck (In re Gray), 573 B.R. 868, 872 (Bankr. D. Kan. 2017) (“In sum, § 524 provides an equitable remedy precluding the creditor, on pain of contempt, from taking any actions to enforce the discharged debt.” (internal quotation omitted).

[46]

Id. at 877 (“Even though the discharge injunction is created by statute, it is well established that the enforcement of the discharge injunction through its contempt authority requires a bankruptcy court to exercise its equity jurisdiction through § 105(a). Specifically, § 105(a) grants bankruptcy courts the power to sanction conduct abusive of the judicial process.” (internal quotation omitted)).

[47]

See In re Paul, 534 F.3d at 1306–07 (stating that a bankruptcy court’s equitable power to “enforce and remedy violations of the Bankruptcy Code” is limited to the “substantive Code provision being enforced”).

[48]

In re Carlson, No. 11-40603, Doc. 45 (Bankr. D. Kan. Mar. 9, 2012) (Karlin, C.J.).

[49]

Id. at Doc. 51 (June 16, 2017).

[50]

Id. at Doc. 54 (July 19, 2017).

[51] [51] Id. The debtors fled the adversary complaint against the creditor alleging that loans they took out to finance tuition for their child’s private high school were not “qualified student loans” under 11 U.S.C. § 523(a) (8). Carlson v. Nat’l Collegiate Trust, No. 12-7008 (Bankr. D. Kan.).

[52]

Carlson, supra note 48, Doc. 54. For student loans that are discharged, an admittedly rare occurrence based on the current state of the law, the withholding of transcripts by the discharged debtor’s school would run afoul of the discharge injunction. Lee v. Bd. of Higher Educ, 1 B.R. 781, 787–88 (S.D.N.Y. 1979).

[53]

Carlson, supra note 48, Doc. 54.

[54]

Id.

[55]

Id.

[56]

Id.

[57]

Id. at Doc. 60 (Oct. 25, 2017).

[58]

Id. at Doc. 63 (November 21, 2017); Doc. 66 (January 17, 2018).

[59]

Id.

[60]

Id.

[61]

Id.

[62] 573 B.R. 868 (Bankr. D. Kan. 2017) (Berger, J.).

[63]

Id. at 873.

[64]

Id.

[65]

Id. at 874.

[66]

Id. at 877.

[67]

Id. at 874–79.

[68]

Id. at 879.

[69] 656 Fed. App’x 425 (10th Cir. 2016).

[70]

Id. at 427.

[71]

Id.

[72]

Id.

[73]

Id.

[74]

Id. at 428.

[75]

Id.

[76]

Id.

[77]

Id. In addition, 11 U.S.C. § 524(j) provides a safe harbor of sorts for creditors holding a secured claim on real property that is the principal residence of a debtor. In those situations, there is no injunction against acts in the ordinary course of business between the creditor and debtor when the creditor is merely “seeking or obtaining periodic payments” associated with the creditor’s security interest “in lieu of” the credit seeking in rem relief to enforce the lien.” 11 U.S.C. § 524(j)(1)–(3).

[78] 577 B.R. 772 (B.A.P. 9th Cir. 2017).

[79]

Id. at 777.

[80]

Id.

[81]

Id.

[82]

Id. at 780.

[83]

Id. at 784.

[84]

Id. at 785.

[85]

Peyrano v. Sotelo (In re Peyrano), No. EO-16-032, 2017 WL 2731299, at *6 (B.A.P. 10th Cir. June 26, 2017) (“Although § 524 does not expressly create a cause of action for damages, the Tenth Circuit has held that, under § 105(a), bankruptcy courts have the equitable power to enforce and remedy violations of substantive provisions of the [Code], including the discharge injunction in § 524(a)(2). (internal quotation marks omitted)).

[86]

Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1306–07 (10th Cir. 2008).

[87]

In re Peyrano, 2017 WL 2731299, at *3, *7.

[88]

In re Robben, 562 B.R. 469, 474 (Bankr. D. Kan. 2017).

[89]

Otero v. Green Tree Servicing, LLC (In re Otero), 498 B.R. 313, 320 (Bankr. D.N.M. 2013) (stating that while discharge injunction violation claims are generally brought as contested matters, an adversary proceeding is also an acceptable choice).

[90]

Jester v. Wells Fargo Bank N.A. (In re Jester), No. EO-15-002, 2015 WL 6389290, at *5 (B.A.P. 10th Cir. Oct. 22, 2015).

[91]

Culley v. Castleberry (In re Culley), No. NM-05-105, 2006 WL 2091199, at *4 (B.A.P. 10th Cir. July 24, 2006) (internal quotation marks omitted).

[92]

Ridley v. M&T Bank (In re Ridley), 572 B.R. 352, 361–62 (Bankr. E.D. Okla. 2017) (“[T]he first requirement of willfulness is simply an intent to commit the act; it does not require a specific intent to violate the Code or plan provisions. It only requires a showing that the creditor intended to credit payments improperly. Absent a creditor’s proof that the improper crediting was a mistake in conflict with the creditor’s normal procedures, the creditor should be presumed to have intended its acts.” (internal quotation marks omitted)); see also In re Culley, 2006 WL 2091199, at *4 (“state of mind is not relevant to whether [a creditor’s] actions violated the discharge injunction).

[93]

Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1308 (10th Cir. 2008).

[94]

Montano v. First Light Fed. Credit Union (In re Montano), 488 B.R. 695, 708 (Bankr. D.N.M. 2013).

[95]

Id. at 709–10. The Montano case provides a lengthy review of the case law discussing whether “a creditor’s failure to update reported information” to a credit bureau to reflect a bankruptcy discharge is even an “act” under 11 U.S.C. § 524(a)(2), and in the end determines that a case by case analysis under the “objective effect” test of Paul is required. Id.

[96]

Peyrano v. Sotelo (In re Peyrano), No. EO-16-032, 2017 WL 2731299, at *6 (B.A.P. 10th Cir. June 26, 2017).

[97]

In re Montano, 488 B.R. at 710.

[98]

In re Peyrano, 2017 WL 2731299, at *7.

[99]

Otero v. Green Tree Servicing, LLC (In re Otero), 498 B.R. 313, 322 (Bankr. D.N.M. 2013).

[100] In re Passa, 578 B.R. 898, 907 (Bankr. D. Utah 2017).

[101] In re Sanchez, 545 B.R. 55, 61 (Bankr. D.N.M. 2016).

[102] In re Peyrano, 2017 WL 2731299, at *7 (“The bankruptcy court is afforded wide discretion in determining the amount of an award of attorney fees and it has far better means of knowing what is just and reasonable than an appellate court.” (internal quotation marks omitted)).

[103] Culley v. Castleberry (In re Culley), No. NM-05-105, 2006 WL 2091199, at *4 (B.A.P. 10th Cir. July 24, 2006).

[104] Id.

[105] See, e.g., In re Carlson, No. 11-40603, Doc. 66 (Bankr. D. Kan. Jan. 17, 2018) (Karlin, C.J.) (ordering, as a deterrent, an award to debtor of $5000 for each future incorrect statement issued by the creditor on the debtor’s account); In re Lovanh, No. 1:16-bk-13183-SDR (Feb. 25, 2018) (ordering nonmonetary sanctions requiring creditor to adopt certain drafting protections for Chapter 13 filers).

[106] In re Culley, 2006 WL 2091199, at *5.

[107] Id.

[108] Id. at *5–6.

[109] Id. at *5.

[110] In re Peyrano, 2017 WL 2731299 at *5–6.

[111] No. 14-12347, 2016 WL 1305060 (Bankr. D. Kan. Mar. 31, 2016) (Nugent, J.)

[112] Id. at *1.

[113] Id.

[114] Id. at *2.

[115] Id.. at *2–3.

[116] Id. at *3.

[117] Id. (citing Kan. Stat. Ann. § 60-732(c)(1)). Substantive state law on property rights is often the key to bankruptcy decisions, Butner v. United States, 440 U.S. 48, 59 (1979), so counsel should always be familiar with the underlying state law at issue.

[118] In re Ledin, 2016 WL 1305060, at *3.

[119] Id.

[120] Id. at *4.

[121] Id.

[122] 447 B.R. 624 (10th Cir. 2011).

[123] Id. at 627.

[124] Id.

[125] Id. at 627–28.

[126] Id. at 632.

[127] Id. at 633.

[128] In re Lunt, 477 B.R. 812, 819 (Bankr. D. Kan. 2012).

[129] Id. (internal quotation marks and alterations omitted).

[130] See, e.g., Beaumont v. Dep’t of Veteran Affairs (In re Beaumont), 586 F.3d 776, 781 (10th Cir. 2009) (no discharge injunction violation occurred when Department of Veteran Affairs reduced a monthly benefit payment to recoup an overpayment because of the doctrine of ...

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