An interesting bankruptcy law update came in late September when the Bankruptcy Court for the Eastern District of Tennessee issued an opinion on In re Moore, addressing three interesting issues all related to bankruptcy discharge injunctions. To keep things straight, we’ll break it down for you.
Important Background
The debtor, James Moore, had filed a Chapter 13 bankruptcy case in which an order of discharge was entered in 2011. A discharge injunction is a court order issued at the end of a bankruptcy case pursuant to 11 USC 524 that prohibits creditors from pursuing “…an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor…” It is the rule that provides the “blank slate” or “fresh start” that debtors get after completing the bankruptcy proceedings.
In 2013, Moore filed another Chapter 13 voluntary bankruptcy petition and the defendant, Comenity Capital Bank, filed a claim in that proceeding. The claim, however, appeared to be based on a debt that had been discharged during the earlier bankruptcy proceeding. Moore brought an adversary complaint seeking an order of contempt and bringing an abuse of process claim. This brought up three separate but equally important issues for the court to decide.
Issue 1: Does filing a proof of claim violate the discharge injunction?
After a lengthy discussion, the court found that the defendant’s filing of the proof of claim in the second bankruptcy case for a discharged debt did, in fact, violate the discharge injunction because it was “an act” to collect a debt, which 11 USC 524 specifically prohibits.
Issue 2: Does the violation then give plaintiff a private cause of action?
The court found that the violation did not give plaintiff a basis for bringing suit against the defendant separate and independent from the underlying bankruptcy proceeding. The court noted that this did not leave Moore without any remedy as he could bring a motion for contempt in the main bankruptcy proceeding.
Issue 3: Were the facts alleged by Moore sufficient to state a claim for abuse of action?
On this issue, the court found in favor of Moore…for now. The court refused to dismiss Moore’s abuse of process claim, which included the allegation that defendants had developed a routine practice of utilizing “protected personally identifiable information of Chapter 13 debtors to electronically file proofs of claims in Chapter 13 cases.” These allegations were sufficient to make Moore’s claim plausible; however, the court’s language was cautionary and seemed to imply that if evidence supporting the claims was not brought to light during discovery, the claim might be dismissed at a later stage in the proceedings.
Still Have Questions?
If you have questions about how Moore impacts your bankruptcy case or just want to learn more about filing for bankruptcy, the Semmes Law Firm is here to help. Contact us with your questions today.