When a creditor commits a willful violation of the discharge injunction about which there was no “fair ground of doubt,” the debtor is entitled to collect damages representing attorneys’ fees incurred in finding the creditor in contempt and in pursuing an award of damages, even though the attorneys’ fees were incurred after the creditor stopped violating the injunction, according to Bankruptcy Judge Rebecca B. Connelly of Harrisonburg, Va.
A creditor obtained a judgment against the debtor in 1998 and filed the judgment with the land records to obtain a judgment lien. At the time, the debtor owned no real property to which the lien would attach.
The debtor and his wife filed a chapter 7 petition in 2017 and received discharges in 2019. The debtor still owned no real property. Consequently, the judgment and the lien were discharged as unsecured debts.
After bankruptcy, the debtor inherited real property. When arranging to sell the property, the title company erroneously told him that he must pay off the judgment before closing.
The debtor evidently located the collection law firm that was responsible for collecting the debt. In writing, the firm offered to release the judgment lien at a discount. The debtor then called the firm to say that the debt was covered by his bankruptcy.
A non-lawyer at the firm testified that she did not check PACER for records of the debtor’s bankruptcy. She said that she disregards bankruptcy claims unless the debtor sends a copy of bankruptcy papers or provides her with the phone number of the debtor’s lawyer.
Because the debtor had done neither, the firm sent a letter offering to settle the debt for $5,000.
The debtor’s lawyer then intervened by telling the title company that the judgment lien had been voided by the bankruptcy. The closing occurred, and collection activity on the judgment ceased.
The debtor sued the firm in bankruptcy court seeking damages for willful violation of the discharge injunction. The debtor won when Judge Connelly awarded the debtor $25,000 for his attorneys’ fees in her January 19 opinion.
By ignoring the debtor’s statement that he had gone through bankruptcy and in taking actions to collect the debt, Judge Connelly found that the collection firm “committed an intentional debt collection act in violation of the plaintiffs’ discharge injunction.” She also found that the firm “did not act in good faith” and that the firm’s actions “were unjustified, unreasonable, and harmful.”
The firm attempted to shift responsibility to the title company. That defense “does not work,” Judge Connelly said, because the firm “disregarded” the debtor’s communications saying that the debt was “covered” by his bankruptcy. She faulted the firm for not checking public records.
An intentional discharge violation having been established, Judge Connelly turned to damages. She said that the firm had not shown good faith, which might have mitigated the damages. Although the firm had halted collection activities, she said that the firm “litigated extensively to avoid compensating the debtors for such attorneys’ fees.”
The debtor’s counsel produced time records showing he spent about $25,000 in time in connection with the sale and in pursuit of damages for the discharge violation. The firm argued that it should only be liable for about $900 in time that the lawyer spent before the sale closed.
So that the debtor would not be worse off for having pursued the discharge violation, Judge Connelly awarded the debtor $25,000 for attorneys’ fees, which she found to be reasonable and necessary “to recompense the debtors for the harm caused by the defendants.”
In other words, Judge Connelly said she was awarding “amounts incurred to enforce the discharge injunction as well as incurred to litigate reimbursement of such amounts.”
For lack of evidence, Judge Connelly declined to award damages for emotional distress or time lost from work.
When a creditor commits a willful violation of the discharge injunction about which there was no “fair ground of doubt,” the debtor is entitled to collect damages representing attorneys’ fees incurred in finding the creditor in contempt and in pursuing an award of damages, even though the attorneys’ fees were incurred after the creditor stopped violating the injunction, according to Bankruptcy Judge Rebecca B. Connelly of Harrisonburg, Va.
A creditor obtained a judgment against the debtor in 1998 and filed the judgment with the land records to obtain a judgment lien. At the time, the debtor owned no real property to which the lien would attach.
The debtor and his wife filed a chapter 7 petition in 2017 and received discharges in 2019. The debtor still owned no real property. Consequently, the judgment and the lien were discharged as unsecured debts.
After bankruptcy, the debtor inherited real property. When arranging to sell the property, the title company erroneously told him that he must pay off the judgment before closing.
The debtor evidently located the collection law firm that was responsible for collecting the debt. In writing, the firm offered to release the judgment lien at a discount. The debtor then called the firm to say that the debt was covered by his bankruptcy.