Discharge Violations

11th Circuit Lays Out Rules for Discharge Violations

What kind of creditor is stupid enough to violate the bankruptcy laws and send collection letters to a debtor after the debt has been clearly discharged in a Chapter 13 bankruptcy? Answer: Nationstar Mortgage.

In the case of Arlene Roth, she clearly intended to surrender her house in Chapter 13 bankruptcy case that was filed on December 22, 2010. Roth received a discharge on June 27, 2014. Nationstar was notified of the discharge.

About 4 months after entry of the discharge, the bank started sending Roth monthly statements related to her mortgage. Can you imagine the stress of going almost 4 years of a Chapter 13 case and then you start receiving collection letters? I bet this was extremely stressful on Ms. Roth. Nationstar never foreclosed on the property. Who lets a house sit for almost 4 years with no payments received? Answer: Nationstar Mortgage.

Roth’s attorney contacted Nationstar and was ignored. The statements kept coming. Roth then filed a motion for sanctions in the bankruptcy court alleging that the statements violated Section 524 of the Bankruptcy Code. She also filed a civil action claiming that the bank violated the Fair Debt Collection Practices Act, and the Florida Consumer Collection Practices Act.

Nationstar then made the smart move and settled the case.

After the litigation was resolved, the bank was stupid enough to send an “informational statement.” The statement contained a due date and instructions on how to pay Nationstar. Roth then filed a second civil suit against Nationstar. In another smart move, Nationstar settled the case. How can a bank be some dumb that they send notices to debtor that they just settled litigation for sending notices? My theory is that bad computer programs run notification systems to bank customers. My guess is that someone high in banks has decided that it is cheaper to settle litigation than it to fix the computer systems.

Roth also filed another motion in the bankruptcy court seeking sanctions but this one did not succeed. The court dismissed the motion finding that the statement was not an attempt to collect a debt. The district court affirmed as did the 11th Circuit. For a view of the entire ruling in this case, click here.

Section 524(a)(2) states that the bankruptcy discharge “operates as an injunction against the commencement or continuation of ….an act…to collect….and such debt.” The key word here is collect.

In the Roth case, Judge Branch found several reasons to conclude that the objective effect of the letter was not to collect. “As an initial matter, the disclaimer is printed in bold on the first page of the statement. It declares that it is ‘for informational purposes only and is not intended as an attempt to collect, assess, or recover a discharged debt from you, or as a demand for payment from any individual protected by the United States Bankruptcy Code.”

The power of the Bankruptcy Court

Sections 524(a)(2) and 105(a) “authorize a court to impose civil contempt sanctions [for attempting to collect a discharged debt] when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (2019). “A court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” Id. at 1799.

What should a person do when they keep receiving letters on debts that were discharged in their bankruptcy case?

The answer to this question is that they must save the letter and get it reviewed by their bankruptcy attorney. A collection letter on a discharged debt could potentially be worth a lot of money.

Contact the Law Office of Jeffrey B. Kelly

Contact the Law Offices of Jeffrey B. Kelly today for a free consultation to review your rights to stop debt collections and wage garnishments. Filing bankruptcy may be the ideal solution to end the harassing bill collectors and provide a fresh start to your financial future. Call 770-809-3099 today.