Deficiency After Surrendering a Home

By , Posted on Jul 12, 2019
bankruptcy
bankruptcy

I FILED A CHAPTER 7 WHEREBY I SURRENDERED MY HOME. THE HOME HAS GONE TO SHERIFF SALE BUT THE CREDITOR IS PURSUING  ME FOR THE DEFICIENCY.  CAN YOU HELP ME?

Under section 11 USC 524 (a)(2), an order discharging a debt in a bankruptcy case “operates as an injunction against the commencement or continuation of an action, the employment of process of an act to collect, recover or offset any such debt as a personal liability of the debtor…” 11 USC 524 (a)(2). 

Mr. Taieb had a case a few years ago where a 40-year old woman from Willingboro, NJ, surrendered her home in a Chapter 13 plan and was then harassed for months after the creditor was put on notice that she was discharged in Chapter 13. The mortgage company paid her a nice sum for the damages she incurred.

However, the law has been modified with regard to a creditor who violates a bankruptcy discharge in Taggart v. Lorenzen, Supreme Court of the United States. Decided June 3, 2019 18-489. In Taggart, the petitioner filed for Chapter 7, and the Court issued a discharge. The Oregon State Court awarded judgment against Taggart in the pre-bankruptcy suit and awarded attorneys fees against Taggart.

Mr. Taggart thereafter went back to Bankruptcy Court and sought civil contempt sanctions against the respondents for collecting attorney fees in violation of the discharge, and the Bankruptcy Court held then in civil contempt 18-489 at page 7.

The Verdict

The Bankruptcy Appellate Panel vacated the sanction imposed, and the 9th Circuit affirmed the panel’s decision, holding that a creditor’s good faith belief that the Discharge Order “does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s claim is unreasonable.”  Id. at 9.

The U.S. Supreme Court held that  “a Court may impose civil contempt sanctions where there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” Id. at 10.

The U.S. Supreme Court rejected the Ninth Circuit’s creditor’s good faith belief, “since it is inconsistent with traditional civil contempt principles under which parties cannot insulate themselves from a finding of civil contempt based on subjective good faith.  This would lead creditors who stand on shaky ground to collect discharged debts, forcing debtors back into litigation to protect their discharge, which was the whole purpose of the bankruptcy filing. Id. at 14

However, the Court also rejected a strict liability standard against creditors.  Id. at 17.

Conclusion

Thus, if you feel that a creditor violated your discharge, a Bankruptcy Court can still hold the creditor liable for civil contempt sanctions if the creditor has no objectively reasonable basis for concluding that its action violated the discharge order.

Steven N. Taieb, Esq. has been a South Jersey Bankruptcy Attorney for over 34 years and is board certified in consumer bankruptcy law by The American Board of Certification which is accredited by The American Bar Association.  

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