584 B.R. 696
Bankr. E.D. Ky.2018Background
- Debtor filed Chapter 13 in 2009, converted to Chapter 7 in 2010, and received a discharge on December 6, 2011.
- Debtor owned Franklin County properties with longtime unpaid property taxes; KTBS purchased certificates of delinquency for 2002 and 2005 taxes and was represented by Bilz in state court foreclosure proceedings.
- Franklin Circuit Court entered in rem judgments against the Franklin County properties in 2016–2017; foreclosure sales followed and the tax liens on those properties were extinguished by sale.
- KTBS and Bilz later filed judgment liens in Johnson County and commenced a foreclosure action there seeking to collect the unpaid amounts (including alleged deficiencies) and sought to enforce judgments against the Debtor and her Johnson County property.
- Debtor moved to enforce the Chapter 7 discharge injunction, arguing KTBS and Bilz were attempting to collect a discharged personal obligation; the bankruptcy court found KTBS and Bilz violated the discharge injunction and granted sanctions in the form of attorney’s fees and costs (jointly and severally), denying non‑compensatory damages for now.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did KTBS/Bilz’s Johnson County filings violate the Chapter 7 discharge injunction? | Debtor: filings sought to collect her discharged personal tax liability; injunction bars collection. | KTBS/Bilz: action is strictly in rem to enforce tax liens, not personal collection. | Yes — the filings were an attempt to collect a discharged personal obligation and violated §524(a). |
| Were KTBS’s prepetition tax liens enforceable against the Johnson County property? | Debtor: original liens were limited to Franklin County properties and were extinguished by sale; they never attached to Johnson County property. | KTBS/Bilz: liens survive and may be enforced against other non‑exempt prepetition properties. | No — original liens applied only to Franklin County properties and were extinguished; they did not attach to Johnson County property. |
| Does K.R.S. § 134.546(4) create a statutory lien permitting post‑discharge in rem enforcement? | Debtor: §134.546(4) does not create a lien and cannot be used to collect a discharged personal obligation. | KTBS/Bilz: §134.546(4) authorizes in rem enforcement/creates a statutory security interest for unpaid in rem judgments. | No — the statute does not create a lien and cannot be used to secure a discharged deficiency judgment. |
| Remedy for the violation — are fees, costs, and punitive damages warranted? | Debtor: seeks attorneys’ fees, costs, and non‑compensatory damages for contempt of the discharge injunction. | KTBS/Bilz: asserted good‑faith belief their in rem action was permissible. | Attorneys’ fees and costs awarded (jointly and severally). Non‑compensatory damages denied for now; court warned of harsher sanctions if conduct continues. |
Key Cases Cited
- Zirnhelt v. Madaj (In re Madaj), 149 F.3d 467 (6th Cir.) (omitted creditors in no‑asset chapter 7 still hold discharged claims)
- Johnson v. Home State Bank, 501 U.S. 78 (U.S. 1991) (discharge extinguishes in personam liability but leaves in rem remedies)
- Pertuso v. Ford Motor Credit Co., 233 F.3d 417 (6th Cir.) (creditor violating discharge injunction may be held in contempt)
- Cox v. Zale Delaware, Inc., 239 F.3d 910 (7th Cir.) (courts may use contempt power to award damages for discharge violations)
- In re Oster, [citation="474 F. App'x 422"] (6th Cir.) (discharge injunction and fresh‑start policy)
- Miles v. Clarke (In re Miles), 357 B.R. 446 (Bankr. W.D. Ky.) (attorney's fees may be awarded as part of damages for discharge violations)