Attempting to collect a debt for which the debtor is not liable nonetheless violates the discharge injunction, according to Bankruptcy Judge Marvin Isgur of Houston.
The dispute arose in a chapter 13 case where the debtor completed payments under her plan and received a discharge. She had scheduled more than $200,000 in student loans that were not discharged.
After discharge of her other debts, the lender demanded payment on about $300,000 in student loans. The debtor notified the lender that some of the loans were her ex-husband’s and that he had forged her signature to consolidate his loans with hers.
After continued attempts by the lender to collect the loan, the debtor reopened her case and filed a complaint to declare that the loans were dischargeable as an undue hardship. She also alleged that the lender violated the discharge injunction.
The lender filed a motion to dismiss, contending that the bankruptcy court had no subject matter jurisdiction and that no discharge violation occurred because the debts were student loans and therefore not discharged under Section 523(a)(8).
Judge Isgur denied the motion to dismiss in an opinion on Nov. 20.
Although “related to” jurisdiction evaporated on discharge, Judge Isgur said that “arising under” jurisdiction remained, along with retained jurisdiction to enforce the court’s discharge order.
Even if there was jurisdiction, the lender contended that the complaint failed to state a claim for violation of the discharge injunction because student loans were not dischargeable. Judge Isgur said that the lender’s logic appeared sound “at first blush.”
However, the complaint alleged that the lender was attempting to collect debts that were not the debtor’s, that the purported obligations resulted from her former husband’s fraud, and that she was not aware of the fraud until the lender demanded payment after discharge.
Assuming the fraud allegation to be true, Judge Isgur said that the lender could not rely on Section 523(a)(8) “to shelter its collection attempts because [the debtor’s] discharge would cover those fraudulent loans.”
Finally, the lender made a facile argument that didn’t fly with Judge Isgur: If the debtor was not liable, the lender contended that there no debt to which the discharge injunction could attach.
“That statement is preposterous,” Judge Isgur said. “All claims that are not excepted from discharge — even false ones — are discharged,” he held.
“Even if the debt does not exist,” Judge Isgur said, the lender “may still be liable for violating the discharge injunction.”