Misapplication of Plan Payments Violates Discharge Injunction

Posted by NCBRC - June 2, 2016

The secured creditor violated the discharge injunction when it misapplied plan payments and then claimed default and late charges post-discharge. Scott v. Caliber Home Loans, 2015 WL 9986691, No. 09-11123, Adv. Proc. No. 14-1040 (Bankr. N.D. Okla. July 28, 2015).

When Patricia J. and Michael A. Scott filed their chapter 13 petition, the predecessor to Caliber Home Loans filed a claim for $180,527.66 with an arrearage of $19,073.96 and ongoing monthly payments of $1,414.19. The Scotts’ plan included paying off their mortgage arrears and maintaining their mortgage payments to Caliber. They made all their plan payments and prior to discharge, Caliber filed a Notice of Post-Petition Mortgage Fee, Expenses, and Charges of $2,061.82. The Scotts paid that amount through the plan. One month before discharge Caliber filed its Statement in Response to Notice of Final Cure Payment stating the debtors had cured the mortgage arrears and were current on their mortgage payments. The debtors received their discharge in March, 2014, and the trustee sent his Notice of Final Cure on April 21, 2014. On May 1, 2014, Caliber mailed a statement to the Scotts stating that they were delinquent in the amount of $3,139.97 for past due monthly payments and uncollected “Late Charges.” Caliber sent a notification that the Scotts were in default and that it had the right to undertake collection action including foreclosure.

Ms. Scott filed an adversary complaint seeking compensatory and punitive damages and attorney’s fees. The complaint alleged violation of the discharge injunction and contempt of court.

While the Tenth Circuit has not ruled on whether section 524 gives debtors a private right of action for violation of the discharge injunction, section 105(a) gives the bankruptcy court the power to sanction a creditor if the party claiming the violation shows that the creditor knew of the discharge and intended the actions that violated it. Under 524(i) a creditor’s failure to properly apply payments in accordance with the confirmed plan constitutes a violation of the discharge injunction. Creditors have an obligation to apprise the court and debtors of any fees and charges that come due during the course of the plan. The intentionality element of discharge injunction violation is met by showing that the misapplication of the payments was not a mistake in contravention of the creditor’s normal procedures. Injury is generally shown by the fact that the failure to properly credit payments results in increased debt and larger lien.

Turning to the uncontroverted facts, the court found that at the time of discharge the Scotts were current on their mortgage payments and had paid off all arrears, and that Caliber nonetheless mailed them a post-discharge notification asserting they were in arrears and owed late fees. The court rejected Caliber’s attempt to inject a controverted issue of fact into the mix by claiming that the Notice of Completion applied to an earlier payment than was currently due. The court found Caliber could not dispute the meaning of the Notice of Completion as establishing that, at the time of their discharge, the Scotts had successfully cured and maintained their mortgage.

The court granted summary judgment to Ms. Scott.

Scott Bankr ND Okla July 2015 opinion



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