570 B.R. 195
Bankr. E.D.N.C.2017Background
- Debtors filed Chapter 13 on May 25, 2011; plan confirmed and trustee paid secured creditor Bank of the West (later Rushmore/U.S. Bank) through the plan. Trustee remitted $52,505.71 (plus $6,550.72 and $676.00 per Consent Order).
- Court entered discharge on October 27, 2016 and sent Discharge Order to Rushmore and counsel for U.S. Bank. Case was closed December 27, 2016.
- After discharge and case closure, Rushmore continued to send debt-collection correspondence to the Debtors asserting small or remaining balances (e.g., $1.00, $751.75, $709.52), and initially failed to record a Satisfaction of Security Instrument.
- Debtors filed a Motion for Sanctions and Damages for violation of the discharge injunction; Rushmore filed a Satisfaction with the Register of Deeds shortly after the Motion but did not respond to the Motion or appear at hearing.
- Court found the creditor/servicer had at least constructive knowledge of the Discharge Order, that the post-discharge correspondence violated the § 524 discharge injunction, and that the acts were willful even if computer-generated.
- Court awarded $2,500 in actual damages to Debtors and $4,600 for attorneys’ fees and costs, holding Rushmore and U.S. Bank jointly and severally liable and finding them in contempt of the Discharge Order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post-discharge collection correspondence violated § 524 discharge injunction | Debtors: correspondence seeking payment after discharge unlawfully attempted to collect discharged debt | Rushmore/U.S. Bank: no response/appearance; no argument presented | Court: Correspondence violated discharge injunction; creditor in contempt |
| Whether creditor had knowledge of discharge | Debtors: court served Discharge Order on Rushmore and U.S. Bank, so they had at least constructive knowledge | No responsive argument by defendants | Court: constructive knowledge established by service of Discharge Order |
| Whether violation was willful | Debtors: sending collection notices after discharge, even computer-generated, was intentional and thus willful | No response; defendants filed Satisfaction later but not timely | Court: willfulness requires intentional act; sending notices was willful despite automation |
| Appropriate remedy and damages for contempt | Debtors: seek sanctions, actual damages, and attorneys’ fees for time, travel, and legal work | No opposition; defendants did not attempt mitigation or timely communication | Court: awarded $2,500 actual damages and $4,600 attorneys’ fees/costs; joint and several liability; further sanctions if unpaid |
Key Cases Cited
- Chappell, 984 F.2d 775 (7th Cir. 1993) (discusses treatment of secured claims under §§ 1322(b)(6) and 1325(a)(5) and options to alter or pay present value)
- Fina, 550 Fed. Appx. 150 (4th Cir.) (two-part test for contempt of discharge injunction: violation and willfulness)
- Cherry, 247 B.R. 176 (Bankr. E.D. Va. 2000) (discharge injunction violations treated as contempt; § 105 remedial authority)
- Arnold, 206 B.R. 560 (Bankr. N.D. Ala. 1997) (Congress enacted § 524(a) to prevent pressure on debtors to pay discharged debts)