One of the great benefits of a successful bankruptcy filing is the discharge a debtor receives. This discharge makes the debt uncollectable forever by the creditor, putting in place a “discharge injunction” that prohibits any personal collection efforts. Most creditors are wise enough to avoid activities that could be perceived as efforts to collect a discharged debt. But not all.
Sometimes, creditors behave like cowboys, and not only do they push the envelope of the debt collection law, they often exceed the bounds and move straight on to violating the discharge order granted under the Bankruptcy Act. And few things annoy a federal bankruptcy judge more than someone flouting explicit orders of their court.
Some creditors recently did just that. A couple had filed a chapter 7 bankruptcy and received their discharge in 2009. Their bankruptcy estate included two properties, one of which had a mortgage, and one without. The debtor abandoned the mortgaged building and was able to repurchase from the bankruptcy trustee the non-mortgaged building.
In 2016, the creditors filed a foreclosure action. They identified the property as being “Lot 39.1,” but there was one slight problem with that filing. These creditors had never had any legal interest in a building on Lot 39.1. The mortgage had been on the building located on Lot 39.2, so even absent a bankruptcy discharge, they had no legal right to bring any action against that property.
But proceed they did, convincing the state court that the foreclosure action did not violate the bankruptcy discharge and contacting the debtors more than 100 times, threatening that they could lose their home. Next time we will look at the ordeal the debtors endured at the hands of these creditors and of the significant sanctions the court applied to the numerous discharge violations.