Mary Wilson Peterson, 657 B.R. 271

Mary Wilson Peterson (Debtor) entered into a contract to sell property to Kracor-South, Inc. (Kracor) in 2004; the sale never closed, leading to state court litigation over specific performance and damages.
The parties mediated, amended settlement agreements were reached, but the sale still did not close; litigation continued in state court with claims for damages and specific performance by Kracor.
In 2012, Peterson filed for Chapter 13 bankruptcy but did not list Kracor or Lindsey as creditors or the state court litigation in her schedules, intentionally omitting them.
Kracor received actual notice of Peterson’s bankruptcy in June 2012, but failed to timely file a proof of claim, and its later motion to file a late claim was denied by the bankruptcy court.
After Peterson received her bankruptcy discharge in 2017, Kracor revived its state court effort to enforce the settlement, prompting Peterson to seek contempt sanctions in bankruptcy court for violation of the discharge injunction.
The bankruptcy court addressed whether Kracor’s claim survived the bankruptcy discharge and if contempt sanctions were appropriate.

Issue	Peterson's Argument	Kracor's Argument	Held
Was Kracor’s claim discharged in bankruptcy?	Yes; claim (even specific performance) is a dischargeable “claim” under Code, Kracor had notice and chance to file claim	No; specific performance under executory contract not a “claim” and was not rejected thus survived (“rode through”)	Yes; claim (including alternative remedies) was discharged, Kracor received notice and due process
Did due process require further notice or rejection of contract?	No; notice of bankruptcy and opportunity to file claim suffice	Yes; failure to notify of rejection deprived right to claim	No; Kracor had adequate notice and opportunity to act
Did Kracor’s post-discharge state litigation violate the discharge injunction?	Yes; enforcement efforts were barred and sanctionable	No; believed rights were not discharged, only enforcing agreement	Yes; no reasonable ground of doubt, contempt found
Are sanctions (and what kind) appropriate against Kracor and Lindsey?	Yes; for attorney’s fees in reopening and litigating contempt	No or minimal; fault Debtor for omissions	Yes, for attorney’s fees but not punitive damages, both parties have unclean hands

Ohio v. Kovacs, 469 U.S. 274 (1985) (Section 101(5)(B) intends that equitable remedies subject to alternative payment rights, e.g., specific performance, are dischargeable claims in bankruptcy)
In re Ben Franklin Hotel Assocs., 186 F.3d 301 (3d Cir. 1999) (Equitable remedies with alternative monetary damages constitute “claims” under the Bankruptcy Code)
Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (Contempt for discharge violations hinges on whether there is an objectively reasonable basis for believing the order didn’t bar the conduct)
Fidelity Mortg. Inv. v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir. 1976) (Knowledge of a court order suffices for contempt, even without formal notice)