9th Cir. BAP: Creditor’s Post-petition Reporting of Overdue Payments to Credit Reporting Agency is Not a Per Se Stay Violation

9th Cir. BAP: Creditor’s Post-petition Reporting of Overdue Payments to Credit Reporting Agency is Not a Per Se Stay Violation

Chapter 13 Debtors appealed an order denying their motion for contempt and sanctions for violating the automatic stay and confirmation order against New Penn Financial, LLC dba Shellpoint Mortgage Servicing (“Shellpoint”) and the Bank of New York Mellon (collectively “Defendants”). The issue before the bankruptcy court was whether a creditor’s post-petition reporting of overdue or delinquent payments to a credit reporting agency (“CRA”), regardless of the information’s accuracy, is a per se violation of § 362(a)(6) and constitutes prohibited collection activity. This question is an issue of first impression before the Panel.

Debtors filed their chapter 13 bankruptcy case on February 7, 2012. Shellpoint is the servicer of the loan secured by Debtors’ residence. Pre-petition arrears on the loan were approximately $11,400.   The Debtors’ 5th amended plan was confirmed by the Bankruptcy Court. The Debtors made all their plan payments, which cured pre-petition mortgage arrears. In addition, the Debtors paid their ongoing mortgage payments.

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.

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 automatic stay and confirmation order in violation of §§ 105, 362 and 1327. 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 § 362(a)(6).

Debtors also argued that the exception to the automatic stay under § 362(b)(2)(E), added by BAPCPA in 2005, that allows credit reporting of overdue child support obligations, conversely means that negative credit reporting otherwise falls within the coverage of § 362(a) and constitutes prohibited collection activity under § 362(a)(6).

The Bankruptcy Court confirmed that the legal issue to be decided was “whether past-due credit reporting is a per se violation of § 362,” and took the matter under submission. 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.

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