A post-discharge debt repayment agreement violated the discharge injunction because it was neither voluntary nor supported by new considerations. Venture Bank v. Lapides, No. 14-3085 (8th Cir. Aug. 25, 2015).
[Read more…] about Post-Discharge Agreement to Pay Unenforceable
POC Violates Discharge Injunction
Filing a proof of claim for a deficiency judgment that was discharged in a previous bankruptcy violates the discharge injunction. Green Point Credit v. McLean, No. 14-14002 (11th Cir. July 24, 2015). Green Point Credit, LLC and Green Tree Servicing LLC (Green Tree) filed a proof of claim for a debt that had been discharged in McLean’s previous bankruptcy and the McLeans filed an adversary proceeding seeking damages for violation of the discharge injunction. Four days later, Green Tree, acknowledging that the claim had been filed in error, withdrew it. The bankruptcy court found that Green Tree violated the discharge injunction and awarded compensatory damages for McLean’s emotional distress, attorney’s fees, and a “coercive” sanction. The district court affirmed. [Read more…] about POC Violates Discharge Injunction
Arbitration Judgment Applies to Determination of Nondischargeability
The doctrine of collateral estoppel mandated that findings in a state court arbitration judgment applied to the determination of nondischargeability of a debt in chapter 7 bankruptcy. Margolis v. Hensley (In re Hensley), No. 12-42785, Adv. Pro. 12-4180 (Bankr. E.D. Tex. Oct. 1, 2014). [Read more…] about Arbitration Judgment Applies to Determination of Nondischargeability
Violation of Discharge Injunction and Abuse of Process
There is no private right of action for violation of the discharge injunction but a debtor may move for contempt in the main bankruptcy case. An abuse of process action, however, may be brought in an adversary proceeding and be established by repeated use of protected personally identifiable information of debtors to file unenforceable proofs of claim in Chapter 13 cases. Moore v. Comenity Capital Bank, No. 13-11325, Adv. Pro. 14-1011 (Bankr. E.D. Tenn. Sept. 29, 2014). [Read more…] about Violation of Discharge Injunction and Abuse of Process
Proof of Claim Violates Discharge Injunction
An Alabama district court upheld a sanction award for violation of the discharge injunction based on the creditor’s filing a proof of claim in a subsequent bankruptcy. McLean v. Greenpoint Credit (In re McLean), No. 13-925 (M.D. Ala. Sept. 4, 2014). [Read more…] about Proof of Claim Violates Discharge Injunction
Three Cases of Discharge Injunction Violations
Three recent cases involve sanctions for violation of the discharge injunction by a creditor filing suit in state court over a debt discharged in bankruptcy. King v. Williams (In re King), No. 12-3701 (8th Cir. March 5, 2014); In re Gracia, No. 13-1373 (B.A.P. 9th Cir. April 4, 2014); In re Hopkins, No. 09-5835 (Bankr. S.D. Ia. April 1, 2014). [Read more…] about Three Cases of Discharge Injunction Violations
Discharge Precludes Deficiency Judgment from Post-Discharge Foreclosure
Does the debtors’ chapter 13 discharge extinguish their liability for a deficiency arising from a post-discharge foreclosure sale of their principal residence by a secured creditor whose claim was paid outside the plan? The Bankruptcy Court for the Eastern District of North Carolina said that it does. In re Rogers, No. 08-8341 (Bankr. E.D. N.C. July 8, 2013).
The issue came before the court when the creditor moved for an order that the earlier discharge did not relieve the debtors’ of personal liability on the post-discharge deficiency. The first hurdle the debtors overcame was the court’s finding that, for discharge purposes, the debt was “provided for” by the plan. The mortgagee had filed a proof of claim and the plan specified that the debtors would continue the payments on the mortgage outside the plan according to the terms of the lending documents. There was no deficiency to be cured through the plan. In Rake v. Wade, 508 U.S. 464, 473-74 (1993), it was established that any plan that describes treatment of a debt, even if that treatment is outside the plan, “provides for” the debt.
The court next found that even though the debtors’ payments on the debt extended beyond the life of the plan, section 1322(b)(5)’s “cure and maintain” provision was not implicated because there was no arrearage to cure through the plan. Therefore, section 1328(a)(1), which states that debts provided for under section 1322(b)(5) were nondischargeable, did not prevent the outcome sought by the debtors.
Finally, the court rejected the argument that by relieving the debtors of the burden of paying the deficiency, the court was “modifying” its rights in violation of section 1322(b) as interpreted by the Court in Nobelman v. American Savings Bank, 508 U.S. 324, 326 (1993). The court found that, in confirming debtors’ plan which merely referenced the lending agreement, the court had not altered the creditor’s rights in any way not permitted by the Code. While the discharge released the debtor from personal liability under Dewsnup v. Timm, 502 U.S. 410, 414 (1992) and Johnson v. Home State Bank, 501 U.S. 78, 84 (1991), in rem liability remained post-discharge and the creditor was able to avail itself of its rights under state law to foreclose based on that liability. The court concluded that, as it had found in its earlier decision in In re Lane, No. 97-06850-8-JRL (Bankr. E.D. N.C. July 13, 2006), “[t]he discharge extinguished their personal liability with respect to any past, present or future judgment arising from SECU’s claim, which was provided for under the debtors’ plan and discharged under § 1328(a).”
Disallowed Claim Renders Lien Void Under 506(d)
The Fourth Circuit found that a lender’s lien was extinguished upon the debtor’s discharge where the lender’s proof of claim had been disallowed due to the lender’s failure to provide the necessary documents to prove that it had a perfected security interest. National Capital Management v. Gammage-Lewis, No. 12-2286 (June 6, 2013). [Read more…] about Disallowed Claim Renders Lien Void Under 506(d)
Heritage Pacific’s Debt Collection Practices Garner More Attention
Heritage Pacific Financial, a debt buyer of foreclosed second mortgages, first popped up on my radar screen nearly two years ago. At that time, Heritage was filing multi-defendent complaints in state and federal courts against California home loan borrowers–mostly Latino–claiming that the borrowers fraudulently misstated their monthly income on their loan applications. I suspect that they were trying to get people to settle with them and save filing fees, but at least most federal district court judges recognized that suing multiple defendants on multiple contracts in the same complaint is not proper under Rule 20 of the Federal Rules of Civil Procedure. (See Order here). As a result, those cases didn’t go very far in court. With the multi-defendant model out the door, Heritage turned its attention to bringing non-dischargeability actions against bankruptcy debtors. Court documents show debtors, many chapter 7 pro se debtors, entering into settlement agreements to pay Heritage thousands of dollars over several years. Sadly, in many of these cases, the underlying debt is uncollectable based on state anti-deficiency laws. Heritage cannot show that it has been assigned the original lender’s fraud claim, or Heritage is unable to demonstrate that the borrower made any false statements or that the original lender relied on any false statement.
Several cases are now pending against Heritage in state courts alleging violations of California’s anti-deficiency laws, the Fair Debt Collection Practices Act, the Rosenthal Act (the state’s version of FDCPA) and the state’s unlawful business practices law.
Earlier this week, Rick Jurgens of the Center for Investigative Reporting, wrote a story that focuses on some of the borrowers that have been targeted by Heritage. ABC affiliate, KGO-TV, in conjunction with CIR, also put together a video news story on Heritage.
NCBRC is looking into Heritage’s practice of bringing frivolous non-dischargeability actions in bankruptcy courts throughout California. The United States Trustee should also consider a thorough investigation of Heritage and its bankruptcy practices.
BAP’s Consider Appeals of Sanctions Orders
Creditor’s counsel is appealing an order by the Bankruptcy Court of the Western District of Missouri awarding Chapter 7 debtor sanctions for $1,500.00 as a result of the creditor’s violation of the discharge injunction under Section 524(a)(2) and (3). In re King, No. 12-6014 (B.A.P. 8th Cir.). The appeal, filed on February 21, 2012, is before the 8th Circuit BAP. The debtor had filed a motion to reopen his bankruptcy case to add the creditor, and the underlying debt was thereafter discharged with no objection. The creditor then filed suit in State Court seeking recovery on that debt. After notifying creditor’s counsel of the bankruptcy discharge to no avail, debtor sought sanctions and attorney fees against creditor’s counsel. The creditor’s counsel appeals the bankruptcy court’s denial of the creditor’s motion for reconsideration of the court’s order granting sanctions.
The BAP for the 9th Circuit is also considering an appeal of an order granting sanctions against creditors and their counsel in the amount of $11,217 for violation of the automatic stay under Section 362(a). In re Knapp, No. 12-1092 (B.A.P. 9th Cir.). Like King, that case involves the pursuit of a state court lawsuit against a Chapter 7 bankruptcy debtor even after the debtor’s counsel sought to educate the creditor’s counsel about the automatic stay.