606 B.R. 760
Bankr. N.D. Ill.2019Background
- Debtor Kristine Shuey filed Chapter 7 in June 2010 and received a discharge in October 2010; Creditor Craig Shuey cosigned Debtor's student loans made in 2004–2005.
- Creditor paid portions of the loans post-petition and later sued Debtor in state courts (Illinois and New York) to recover those payments; he obtained judgments and garnished wages.
- Debtor moved to reopen the bankruptcy and sought sanctions, arguing Creditor’s right to contribution was a contingent pre-petition claim discharged in 2010; the bankruptcy court initially denied sanctions and construed the claim as post-petition.
- The District Court reversed in part, holding the dispositive question is whether Creditor’s contribution claim was a contingent pre-petition claim that could be discharged, and remanded for further proceedings.
- On remand the bankruptcy court concluded Creditor’s claim is a contingent pre-petition claim (arising from the pre-petition guaranty) and therefore was discharged, but Section 523(a)(8)(A)(ii) did not except Creditor’s claim from discharge.
- The court permanently enjoined Creditor from continuing state-court collection against Debtor but denied Debtor’s request for civil contempt sanctions, finding Creditor had an objectively reasonable basis to litigate his position.
Issues
| Issue | Debtor's Argument | Creditor's Argument | Held |
|---|---|---|---|
| Whether Creditor’s right to contribution for post-petition payments is a contingent pre-petition "claim" dischargeable in bankruptcy | The contribution right arises from the pre-petition guaranty and is a contingent pre-petition claim that was discharged in 2010 | The contribution claim arose only after Creditor made post-petition payments, so it is a post-petition claim and not discharged | Held: Claim is a contingent pre-petition claim (in fair contemplation at signing) and thus was discharged absent an exception |
| Whether the claim falls within 11 U.S.C. § 523(a)(8)(A)(ii) (exception for educational obligations) | The statutory language should be narrowly construed; creditor’s contribution obligation is not an "educational loan" and so is dischargeable | Creditor contends some courts treat co-obligor obligations as within §523(a)(8)(A)(ii) so his claim is excepted from discharge | Held: §523(a)(8)(A)(ii) does not apply to Creditor’s contribution claim; exceptions to discharge construed narrowly |
| Whether past violations of the discharge injunction warrant civil contempt or sanctions | Debtor seeks return of garnished wages, fees, and punitive damages for willful violation | Creditor contends civil contempt requires an objectively unreasonable violation; there was existing authority supporting his position | Held: No sanctions—Creditor had an objectively reasonable basis to believe his conduct might be lawful; civil contempt not imposed |
| Relief following remand | Debtor requests reopening, injunction, and sanctions | Creditor opposes discharge characterization and sanctions | Held: Bankruptcy case reopened; Creditor permanently enjoined from pursuing collection against Debtor; sanctions denied |
Key Cases Cited
- Rosteck v. Rosteck, 899 F.2d 694 (7th Cir. 1990) (pre-petition agreements can give rise to contingent claims that are discharged)
- Matter of Chicago, Milwaukee, St. Paul & Pacific R. Co., 6 F.3d 1184 (7th Cir. 1993) (a contingent claim may need to be raised pre-confirmation despite lack of accrued cause of action)
- In re Conseco, 330 B.R. 673 (Bankr. N.D. Ill. 2005) (discussing continuum of contingency and tests for contingent claims)
- Saint Catherine Hosp. of Indiana v. Indiana Family & Soc. Servs. Admin., 800 F.3d 312 (7th Cir. 2015) (contractual liability generally arises when contract is signed)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (exceptions to discharge are construed narrowly)
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (civil contempt for discharge violations requires no objectively reasonable basis to believe conduct is lawful)