In re: Robert C. Keller and Finley Jones Keller
Appearances: Scott J. Sagaria of Sagaria Law, P.C. argued for appellants Robert C. Keller and Finley Jones Keller; B. Ben Mohandesi of Yu Mohandesi LLP argued for appellees New Penn Financial, LLC dba Shellpoint Mortgage Servicing and Bank of New York Mellon fka The Bank of New York as Trustee for the Certificateholders of CWMBS, Inc., CHL Mortgage Pass-Through Trust 2004-HYB5, Mortgage Pass-Through Certificates, Series 2004-HYB5.
Before: BRAND, JURY and TAYLOR, Bankruptcy Judges.
BRAND, Bankruptcy Judge:
Chapter 131 debtors Robert and Finley Keller (Debtors) appeal an order denying
This question is an issue of first impression before the Panel. We hold that it is not, and we AFFIRM.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Debtors filed their chapter 13 bankruptcy case on February 7, 2012. Shellpoint is the servicer of the loan secured by Debtors’ residence. Prepetition arrears on the loan were approximately $11,400.
Debtors’ fifth amended chapter 13 plan, confirmed by the bankruptcy court, provided for payment of the prepetition arrears; maintenance of ongoing contractual installments due on the loan would be paid by the chapter 13 trustee. Debtors made all payments under the plan. Prepetition arrears were cured by March 31, 2015. At the time of Debtors’ contempt motion, the trustee was making the ongoing monthly loan payments under the plan.
In January 2016, Mrs. Keller obtained a 3-bureau credit report (Experian, Equifax and Transunion) containing the following information Shellpoint furnished to these three CRAs about the loan:
Payment History: 120 to 90 days late on all three bureau reports for March 2014 through December 2015.
Payment Status: Account reported as past due 150 days, at least 120 days or more then four payments past due and 120 days past due.
Past Due Balance: All three bureau reports list the account as $9,297.00 past due.
Bankruptcy Status: Shellpoint failed to report that the account was included in or part of a chapter 13 repayment plan.
Mr. Keller‘s 3-bureau credit report contained similar information furnished by Shellpoint:
Payment History: 120 to 90 days late on all three bureau reports for March 2014 through March 2015.
Past Due Balance: All three bureau reports list the account as $9,297.00 past due.
On January 27, 2016, Mr. Keller was denied credit in the purchase of a new vehicle. The denial letter indicated that Mr. Keller was an Unacceptable Credit Risk and that credit was denied based in whole or in part on information obtained on a report from Experian.
Debtors moved for contempt and sanctions against Defendants for violating the automatic stay and confirmation order. Debtors argued that by reporting misleading and inaccurate information on their credit reports — i.e., that the account was severely delinquent and with a past due balance — Defendants had willfully acted to collect on a debt that was subject to the
In support of their stay violation claim, Debtors argued that reporting of an account which has been included in a chapter 13 bankruptcy as past due or late is a per se violation of the automatic stay, because reporting late payments or past due balances is classic collection activity under
Debtors also argued that the exception to the automatic stay under
Lastly, Debtors relied on In re Sommersdorf, 139 B.R. 700 (Bankr. S.D. Ohio 1991), a published case supporting their position.
At the hearing, Debtors’ counsel clarified that the issue before the bankruptcy court was not the accuracy of what was reported to the CRAs but rather whether reporting that a payment is past due or late violates the automatic stay. The bankruptcy court confirmed that the legal issue to be decided was whether past-due credit reporting is a per se violation of
In a written memorandum, the bankruptcy court denied Debtors’ motion for contempt and sanctions for violation of the automatic stay and confirmation order. Debtors timely appealed the ensuing order.
II. JURISDICTION
The bankruptcy court had jurisdiction under
III. ISSUES
- Did the bankruptcy court err in determining that the act of postpetition credit reporting of overdue or delinquent payments is not a per se violation of
§ 362(a)(6) ? - Did the bankruptcy court err in determining that the credit reporting did not violate the confirmation order under
§ 1327(a) ?
IV. STANDARDS OF REVIEW
We review the bankruptcy court‘s conclusions of law de novo and its findings of fact for clear error. Hansen v. Moore (In re Hansen), 368 B.R. 868, 874 (9th Cir. BAP 2007). De novo review requires that we consider a matter anew, as if no decision had been made previously. Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014). Factual findings are clearly erroneous if they are illogical, implausible or without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).
We review de novo the bankruptcy court‘s determination as to whether the automatic stay provisions of
We review the bankruptcy court‘s decision regarding civil contempt for abuse of discretion. Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1191 (9th Cir. 2003). Underlying factual findings made in connection with a civil contempt order are reviewed for clear error. Id.
V. DISCUSSION
A. The bankruptcy court did not err in determining that the act of postpetition credit reporting of overdue or delinquent payments is not a per se violation of § 362(a)(6) .
We hold that postpetition credit reporting of overdue or delinquent payments, without more, does not violate the automatic stay as a matter of law.
Two district court decisions in the Northern District of California have expressly rejected the argument that postpetition credit reporting of overdue or delinquent payments is a per se violation of the automatic stay.2 See Giovanni v. Bank of Am., N.A., 2012 WL 6599681, at *5 (N.D. Cal. Dec. 18, 2012); Mortimer v. JP Morgan Chase Bank, N.A., 2012 WL 3155563, at *3 (N.D. Cal. Aug. 2, 2012).
In Mortimer, the debtor argued that the automatic stay prohibited the bank‘s reporting of delinquent payments while the bankruptcy case was pending, contending that such reporting violated the letter and the spirit of
Section 362 does not stand for the proposition that an individual is not obliged to make timely payments on his accounts while his petition for bankruptcy is pending. Rather,
§ 362 limits collection activities in pursuit of claims that arose before the bankruptcy petition. While it might be good policy in light of the goals of bankruptcy protection to bar reporting of late payments while a bankruptcy petition is pending, neither the bankruptcy code nor the [Fair Credit Reporting Act] (FCRA) does so.
In Giovanni, the debtor argued that the bank‘s reporting of late payments once she filed her bankruptcy case was a prohibited creditor shenanigan and violated
Debtors contend the bankruptcy court erred by relying on Mortimer and its progeny because those cases dealt only with accuracy under the FCRA and not
We also reject Debtors’ argument that the bankruptcy court erred by relying on Mortimer but failing to acknowledge the split of authority regarding the issues presented in Mortimer, citing Grantham v. Bank of Am., N.A., 2012 WL 5904729 (N.D. Cal. Nov. 26, 2012) and Venugopal v. Digital Fed. Credit Union, 2013 WL 1283436, at *3 (N.D. Cal. Mar. 27, 2013). The issue in both Grantham and Venugopal was the accuracy of the credit reporting and claims under the FCRA and its California counterparts, not whether the credit reporting violated the automatic stay.
We note the dearth of case law on the precise issue before us. Most courts have addressed this issue in the context of the discharge injunction. The discharge injunction serves as a broad injunction against a wide range of collection activities for discharged debts. See
We understand the distinction Debtors attempt to make here but conclude that, because the standard for violations of the automatic stay and the discharge injunction are similar,4 the discharge injunction cases are relevant and persuasive. These cases stand for the proposition that negative credit reporting, without more, does not violate the discharge injunction. The debtor must show that the credit reporting was done with the purpose of coercing the debtor to pay the reported debt.
In Mahoney v. Washington Mutual, Inc. (In re Mahoney), 368 B.R. 579 (Bankr. W.D. Tex. 2007), the issue before the bankruptcy court was whether reporting a discharged debt constitutes an act to collect the debt in violation of the discharge injunction. The court held that the mere reporting of credit information about a debtor is not an act to collect a discharged debt within the meaning of the statute, unless the evidence shows there is a linkage between the act of reporting and the collection or recovery of the discharged debt. Id. at 584.5 The following courts are in agreement. See Montano v. First Light Fed. Credit Union (In re Montano), 488 B.R. 695, 710 (Bankr. D. N.M. 2013) (reporting discharged debt as past due is facially permissible and does not constitute a per se violation of the discharge injunction, but such act could be found to violate the discharge injunction if its objective effect was to pressure debtor into paying the discharged debt); Russell v. Chase Bank USA (In re Russell), 378 B.R. 735, 742 (Bankr. E.D.N.Y. 2007) (reporting a discharged debt can violate the discharge injunction if done for the specific purpose of coercing payment); Lohmeyer v. Alvin‘s Jewelers (In re Lohmeyer), 365 B.R. 746, 750 (Bankr. N.D. Ohio 2007) (same); Smith v. Am. Gen. Fin. Inc. (In re Smith), 2005 WL 3447645, at *3 (Bankr. N.D. Iowa Dec. 12, 2005) (past due credit report notation can be a violation of the discharge injunction if made with the intent to collect a debt); Helmes v. Wachovia Bank, N.A. (In re Helmes), 336 B.R. 105, 109 (Bankr. E.D. Va. 2005) (bank that mistakenly reported debt as past due rather than discharged, absent any other evidence that it did so with intent to collect the debt, did not violate the discharge injunction); Irby v. Fashion Bug (In re Irby), 337 B.R. 293, 296 (Bankr. N.D. Ohio 2005) (reporting of discharged debt does not run afoul of the discharge injunction unless it is also coupled with other actions undertaken by the creditor to collect or recover on the debt); In
re Goodfellow, 298 B.R. 358, 362 (Bankr. N.D. Iowa 2003) (finding a violation of the automatic stay and discharge injunction based on creditor‘s reporting of the debtor‘s debt as past due in addition to its collection letters and threatening phone calls to debtor attempting to collect the debt); Vogt v. Dynamic Recovery Servs. (In re Vogt), 257 B.R. 65, 71 (Bankr. D. Colo. 2000) (false credit reporting, if not done to extract payment of the debt, is not an act proscribed by the Code).
The other line of cases addressing the issue of negative postpetition credit reporting involve alleged violations of the codebtor stay under
While the purpose of the codebtor stay and standing may have been at issue in these cases, they too hold that negative credit reporting, without more, does not violate the codebtor stay. See In re Burkey, 2012 WL 5959991, at *4 (Bankr. N.D.N.Y. Nov. 28, 2012) (Though there is little case law addressing whether reporting negative information to a credit reporting agency constitutes an act to collect a debt, the court is persuaded by those courts that hold the credit reporting must be part of a broader effort to collect the debt to be a violation of the codebtor stay[.] ); In re Juliao, 2011 WL 6812542, at *4 (Bankr. E.D. Mich. Nov. 29, 2011) (bank‘s reporting of codebtor‘s past due payments to CRAs was not an act to collect the debt and therefore did not violate
Finally, the few cases addressing the issue of negative credit reporting in the context of
Notably, none of the cases cited above held that negative credit reporting, as a matter of law, is a collection activity that violates
[T]here is a distinction between an internal bank accounting procedure and the placing of a notation on an obligor‘s credit report. We find that the latter most certainly must be done in an effort to effect collection of the account. See, In re Spaulding, 116 B.R. 567, 570 (Bankr. S.D. Ohio 1990) . . . . Such a notation on a credit report is, in fact, just the type of creditor shenanigans intended to be prohibited by the automatic stay. H.R. Rep. No. 95–595, 95th Cong. 1st Sess. 342 (1977) reprinted in 1978 U.S. Cong. & Admin. News 5787, 6298 (omitted).
Id. Cf. Bruno v. First USA Bank (In re Bruno), 356 B.R. 89, 91 (Bankr. W.D.N.Y. 2006) (credit reporting could constitute an act to collect a debt, but because creditor‘s reporting of the debt occurred prepetition the court declined to extend the discharge injunction to cause the creditor, post-discharge, to update its reporting of discharged debt).
Second, as the bankruptcy court recognized and as we have pointed out with the above cases, Sommersdorf‘s per se analysis has been rejected or largely not followed. In addition, there were other affirmative acts and facts on which the court could have concluded that the creditor‘s negative credit reporting was done for the purpose of attempting to collect the debt. Prior to filing the motion alleging the stay violation, the debtor requested the creditor to remove the charge-off notation but the creditor refused. Also, the creditor was receiving a 100% payment of its claim and could not have prevailed on a motion for relief from stay. Lastly, Sommersdorf is inconsistent with Ninth Circuit law, which requires evidence indicating harassment or coercion to establish a violation under
In Morgan Guar. Tr. Co. of N.Y. v. Am. Sav. & Loan Ass‘n, 804 F.2d 1487, 1491 (9th Cir. 1986), the issue was whether presentment of the debtor‘s bearer notes to a third party bank postpetition violated the automatic stay under
the debtor‘s possession of his or her property, such that the debtor is required to take affirmative acts to protect his or her interest. Id. We fail to see how negative credit reporting, standing alone, could be a violative act.
In Zotow v. Johnson (In re Zotow), 432 B.R. 252, 259 (9th Cir. BAP 2010), the Panel held in the context of a motion alleging a creditor‘s violation of the automatic stay under
The debtor asserts that the only reason for a creditor to submit such a derogatory report is to collect the debt. The debtor is certainly correct that such a derogatory notation on a credit report may have the effect of causing some debtors to pay the discharged debt, but that does not prove that it was submitted with that intention. The argument assumes that there is no other reason why such a derogatory report would be submitted and, concludes that it must have been submitted with the proscribed intent. The debtor‘s argument fails if there is another reason why the derogatory report was made.
336 B.R. at 109. In Helmes, another reason for the negative credit reporting was mistake.
Another reason for reporting a delinquent debt that does not have a direct purpose of collecting the debt is to share information relevant to credit granting decisions:
[A] distinction must be made between acts which have as their direct and natural purpose the collection of debts and acts which have some other lawful purpose but could also be used (or, more accurately, misused) to coerce payment of a debt. The reporting of a delinquent debt to a credit reporting agency is not inherently an act to collect a debt but rather to share information relevant to credit granting decisions. A creditor reports both performing and delinquent accounts in the expectation that other credit grantors will do the same, enhancing each creditor‘s ability to evaluate proposed credit transactions and to avoid extending credit or making loans to poor credit risks.
In re Jones, 367 B.R. 564, 569 (Bankr. E.D. Va. 2007).9
to
Prior to BAPCPA, the automatic stay did not bar commencement of an action or proceeding to establish paternity, to establish or modify an order for alimony, maintenance or support, or to collect such debts from property that was not property of the estate. However, BAPCPA revamped the way the automatic stay applies to domestic matters. Under the new
Thus, BAPCPA‘s expansion with respect to domestic relation proceedings in
Furthermore, to read
Accordingly, we hold that the act of postpetition credit reporting of overdue or delinquent payments while a bankruptcy case is pending is not a per se violation of
B. The bankruptcy court did not err in determining that the credit reporting did not violate the confirmation order under § 1327(a) .
A violation of the confirmation order under
B.R. 171, 179-80 (Bankr. D.S.C. 2008). For contempt, the moving party must show by clear and convincing evidence the contemnors violated a specific and definite order of the court. Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 (9th Cir. 2002).
Debtors argued that Shellpoint‘s reporting of past due balances on Debtors’ credit reports violated the confirmation order. First, Debtors argued Shellpoint was bound by the chapter 13 plan, and its actions of reporting past due payments to CRAs failed to conform to the plan‘s terms. Second, § 2.08(b)(5) of the plan required that [p]ostpetition payments made by Trustee and received by the holder of Class 1 claims shall be applied as if the claim were current and no arrearage existed on the date the case was filed. Thus, argued Debtors, the plan required Shellpoint to report all timely made postpetition payments as being current as though no default existed, and Shellpoint had failed to comport its reporting of the account with this requirement. Defendants countered that Debtors’ plan was silent about credit reporting, and § 2.08(b)(5) of the plan did not refer to credit reporting as Debtors had argued; it only governed the manner in which payments of the arrearage would be applied to the claim.
The bankruptcy court found that the confirmation order did not require Defendants to report — or not report — anything regarding Debtors’ credit information. The confirmation order neither directed nor prohibited credit reporting. Debtors were reading too much into § 2.08(b)(5), attempting to make the word applied synonymous with report. The court reasoned that in order to reach the conclusion Debtors suggested, it would have to infer a nexus between the application and reporting of payments. In other words, the court would have to read into the plan what the plan did not expressly state. Hence, this meant — at least with respect to credit reporting — Debtors’ confirmed plan was not definite and specific. Accordingly, Defendants could not be found in contempt.
We perceive no error in the bankruptcy court‘s ruling. The confirmed plan is entirely silent on the issue of credit reporting. Debtors contend that applied necessarily includes reporting but fail to cite any authority for this contention. To the extent Debtors contend the postpetition credit reporting is erroneous and does not match Defendants’ application of Debtors’ loan payments under the confirmed plan, as the bankruptcy court noted, the remedy for that is not in the Code but perhaps in the FCRA.
VI. CONCLUSION
For the reasons stated above, we AFFIRM.