Attempting to collect a debt paid in full under a chapter 13 plan can violate the federal Fair Debt Collection Practices Act, or FDCPA, according to the Ninth Circuit.
Because the debtor was not basing the suit on a violation of the discharge injunction, the claim was not barred by either Midland Funding LLC v. Johnson, 37 S. Ct. 1407 (2017), or by similar Ninth Circuit precedent.
The debtor was about $3,000 in arrears in payment of assessments owing to his homeowners’ association. He filed a chapter 13 petition after the HOA commenced foreclosure proceedings.
The debtor confirmed a plan where he paid the arrears in full through the chapter 13 trustee. For current charges, he paid the HOA directly.
During the chapter 13 case, the agent for the HOA gave notice that the arrears had been paid in full. The chapter 13 trustee also issued a notice saying the arrears had been paid. Later still, the debtor received his discharge after the trustee issued a notice of final cure payments and completion of payments under the plan.
After discharge, a different agent for the HOA served the debtor with the same notice of default that had been served on the debtor before the chapter 13 filing. When the debtor explained that the arrears had been paid, the HOA conceded that nothing was owing.
The debtor sued in district court under the FDCPA, 15 U.S.C. § 1692-1692p. The district court granted the HOA’s motion for summary judgment, relying on Walls v. Wells Fargo Bank N.A., 276 F.3d 502 (9th Cir. 2002).
In Walls, the Ninth Circuit had held years before Midland Funding that a debtor has no claim under the FDCPA for violating the discharge injunction. In Midland Funding, the Supreme Court held that filing a claim barred by the statute of limitations does not violate the FDCPA. To read ABI’s report on Midland Funding, click here.
Neither case barred the debtor’s FDCPA suit, the Ninth Circuit ruled in an opinion on November 25 by Circuit Judge Danielle J. Hunsaker.
Judge Hunsaker said that the debtor’s claim was “provided for” in the chapter 13 plan and therefore had been discharged under Section 1328(a). Had the debtor based the FDCPA claim on a violation of the discharge injunction, the claim would have been barred by Walls.
However, Judge Hunsaker pointed out that the debtor “does not seek a remedy for violation of the discharge order.” Instead, she said that the debtor was alleging that the HOA attempted to collect a debt that had been “fully paid nearly two years before his discharge.” [Emphasis in original.] Even if the debtor had never received a discharge, she said that the debtor “could still assert [that the HOA’s agent] acted unlawfully by attempting to collect a debt that had been fully satisfied.”
Therefore, Judge Hunsaker said, the debtor’s claims are “premised on a wholly independent theory.” Walls, she said, “does not bar independent theories of recovery whenever violation of the discharge order is also a potentially available theory of recovery.”
Judge Hunsaker declined “to extend Walls to preclude claims that are not premised on a violation of the bankruptcy discharge order.”
Similarly, Judge Hunsaker held that Midland Funding did not bar the suit because there were multiple documents showing that the HOA had been paid in full.
The debtor may win on remand. In a footnote, Judge Hunsaker noted that the district court had not ruled on whether the HOA’s agent had a bona fide error defense.
Attempting to collect a debt paid in full under a chapter 13 plan can violate the federal Fair Debt Collection Practices Act, or FDCPA, according to the Ninth Circuit.
Because the debtor was not basing the suit on a violation of the discharge injunction, the claim was not barred by either Midland Funding LLC v. Johnson, 37 S. Ct. 1407 (2017), or by similar Ninth Circuit precedent.
The debtor was about $3,000 in arrears in payment of assessments owing to his homeowners’ association. He filed a chapter 13 petition after the HOA commenced foreclosure proceedings.
The debtor confirmed a plan where he paid the arrears in full through the chapter 13 trustee. For current charges, he paid the HOA directly.
During the chapter 13 case, the agent for the HOA gave notice that the arrears had been paid in full. The chapter 13 trustee also issued a notice saying the arrears had been paid. Later still, the debtor received his discharge after the trustee issued a notice of final cure payments and completion of payments under the plan.