According to the Eleventh Circuit, an information statement sent by a secured lender regarding a debtor’s discharged personal liability on a mortgage does not violate the discharge injunction in Section 524, although the same statement may violate the federal Fair Debt Collection Practices Act, or FDCPA, 15 U.S.C. § 1692-1692p.
Even if there were a violation of the discharge injunction, the Atlanta-based appeals court said the lender could not be saddled with contempt sanctions given the rule laid down in Taggart v. Lorenzen, 139 S. Ct. 1795 (June 3, 2019). To read ABI’s discussion of Taggart, click here.
The essential facts were simple. The debtor said in her schedules that she would surrender real property that was not her homestead. Her chapter 13 plan provided that secured creditors would retain their liens.
The lender had not foreclosed, but after the debtor received her chapter 13 discharge, the lender began sending her information statements showing the amount due and attaching a payment coupon labeled “voluntary.” The statement included a disclaimer saying that the lender was not attempting to collect a discharged debt.
When the lender continued sending information statements after the debtor sent a cease and desist letter, the debtor filed suit under the FDCPA in district court. Employing the “least sophisticated consumer” test, the district court denied the lender’s motion to dismiss, ruling that the debtor alleged a plausible claim that the information statements violated the FDCPA, despite the disclaimer.
At the same time as the FDCPA suit, the debtor filed a motion for sanctions in bankruptcy court, alleging that the lender was in contempt of the discharge injunction. The bankruptcy court denied the motion, concluding that the information statements were not an attempt at debt collection. The district court affirmed.
In an opinion on August 28, Circuit Judge Elizabeth L. Branch affirmed.
Judge Branch described the two-step process for deciding whether sanctions are appropriate. First, she said, the court must determine whether the “‘objective effect of the creditor’s action is to pressure the debtor to repay a discharged debt,’” quoting In re McLean, 794 F.3d 1313, 1322 (11th Cir. 2015).
Second, under Taggart, a contempt citation may not issue unless there is “no fair ground of doubt” about the lender’s violation of the discharge injunction. Taggart, 139 S. Ct. at 1799.
On the first test, Judge Branch said that the debtor had not shown “an improper attempt at debt collection,” given the disclaimer and the “voluntary” label on the payment coupon.
“Notably,” Judge Branch said, Section 524(f) “allows for a debtor to pay back a discharged debt voluntarily.” As a result, she said, there must be “daylight” between an unlawful attempt at debt collection and a legitimate effort at informing the debtor how she could retain property.
Judge Branch rejected the debtor’s contention that the “least sophisticated consumer” standard under the FDCPA should be imported to evaluate whether a creditor has violated Section 524. “[W]hat counts as ‘debt collection’ under one statutory scheme is not necessarily ‘debt collection’ under the other,” she said.
Even if there were a violation of Section 524, Judge Branch ruled that sanctions were “unavailable under the Supreme Court’s recent decision in Taggart.” Because there was “more than a ‘fair ground of doubt’” about a violation of the discharge injunction, “sanctions would be inappropriate,” she said.
Question: Over time, will courts begin to constrict consumer protections by importing Section 524 standards into decisions on what is or is not a legitimate debt collection practice under the FDCPA?
According to the Eleventh Circuit, an information statement sent by a secured lender regarding a debtor’s discharged personal liability on a mortgage does not violate the discharge injunction in Section 524, although the same statement may violate the federal Fair Debt Collection Practices Act, or FDCPA, 15 U.S.C. § 1692-1692p.
Even if there were a violation of the discharge injunction, the Atlanta-based appeals court said the lender could not be saddled with contempt sanctions given the rule laid down in Taggart v. Lorenzen, 139 S. Ct. 1795 (June 3, 2019).
The essential facts were simple. The debtor said in her schedules that she would surrender real property that was not her homestead. Her chapter 13 plan provided that secured creditors would retain their liens.
The lender had not foreclosed, but after the debtor received her chapter 13 discharge, the lender began sending her information statements showing the amount due and attaching a payment coupon labeled “voluntary.” The statement included a disclaimer saying that the lender was not attempting to collect a discharged debt.