530 B.R. 889
Bankr. M.D. Ala.2015Background
- Derrick and Donna Maddox received a Chapter 7 discharge in 2010 after a Chapter 13 case (First Case) in which Capital One had been granted relief from stay on a 2004 Hyundai Accent and the debt was not reaffirmed.
- Five years later the Maddoxes filed a new Chapter 13 petition (Second Case) in 2014; Capital One filed Proof of Claim No. 12 asserting a secured claim of $2,975 based on the same vehicle.
- Capital One’s proof of claim included the legend: “Creditor reserves the right to amend its claim to seek a deficiency balance, if any, in the event creditor’s collateral is liquidated.”
- Plaintiffs sued alleging that filing that proof of claim violated the discharge injunction from the First Case (and also asserted FDCPA claims not resolved here).
- Capital One moved to dismiss under Rule 12(b)(6), arguing its proof of claim was a permissible assertion of an in rem secured claim surviving discharge; the Court denied the motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing a proof of claim that reserves a deficiency after a prior discharge violates §524(a)(2) | Filing the proof of claim seeking a deficiency is an attempt to collect discharged in personam liability | Capital One holds an in rem secured claim in the vehicle and may file a secured proof of claim without violating the discharge | Denied dismissal: plausibly alleges violation where creditor’s proof of claim reserves unsecured deficiency and may have abandoned in rem rights |
| Whether Johnson v. Home State Bank controls | Disagrees that Johnson authorizes reserving an unsecured deficiency after discharge | Relies on Johnson to say mortgage/security interest survives discharge and supports filing a claim | Court: Johnson distinguishes in rem survival, but here creditor expressly reserved in personam deficiency, so Johnson does not resolve the problem |
| Whether creditor’s failure to repossess after stay relief affects claim status | Plaintiffs: five-year inaction suggests abandonment of in rem claim and coercive attempt to collect personally | Capital One: inaction does not change its secured rights; filing is pursuit of in rem remedy | Court: reasonable inference of abandonment supports plausibility of an in personam collection attempt; survives dismissal |
| Whether filing a claim can be coercive when collateral is worthless | Plaintiffs: analogous to Pratt — creditor coercively uses worthless collateral to compel payment | Capital One: filing a secured claim is lawful pursuit of collateral value | Court: Pratt supports that creditor conduct can be coercive; parallels are sufficient to let claim proceed |
Key Cases Cited
- Conseco, Inc. v. Schwartz (In re Conseco), 330 B.R. 673 (Bankr. N.D. Ill.) (bankruptcy jurisdiction discussion)
- Ins. Co. of N. Am. v. NGC Settlement Trust & Asbestos Claims Mgmt. Corp. (In re National Gypsum Co.), 118 F.3d 1056 (5th Cir.) (core proceeding analysis)
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard for pleadings)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading standard; factual plausibility)
- Johnson v. Home State Bank, 501 U.S. 78 (mortgage lien survives discharge; in rem v. in personam distinction)
- Pratt v. Gen. Motors Acceptance Corp. (In re Pratt), 462 F.3d 14 (1st Cir.) (creditor’s refusal to repossess or release lien can coerce payment and violate discharge)