Collection of Periodic Mortgage Payments Does Not Violate the Discharge Injunction

Collection of Periodic Mortgage Payments Does Not Violate the Discharge Injunction

The Debtor sought relief under Chapter 7 of the Bankruptcy Code on December 29, 2009. Her unsecured debts were discharged on April 6, 2010. She is the Plaintiff in this adversary proceeding seeking damages for alleged violations of the discharge injunction.

Before her discharge was entered the Plaintiff reaffirmed three debts: a loan on a 2006 Toyota Avalon with Wells Fargo Financial, Inc. ($20,600 to repaid); a loan on a 2003 Toyota Matrix with Wells Fargo Financial, Inc. ($9,625 to be repaid),  and a Home Equity Loan on  with Wells Fargo Bank, N.A. ($101,484.68 to be repaid)

The docket does not disclose that the Plaintiff rescinded any of the reaffirmation agreements by sending a rescission notice to a creditor within 60 days of its filing or before entry of the discharge, as allowed by 11 U.S.C. § 524(c)(4).

The Plaintiff had a fourth secured debt, a mortgage on her residence, with a different Wells Fargo entity, Wells Fargo Home Mortgage (“Wells Fargo Home”). That debt is the subject of this adversary proceeding. At ¶ 8 of her Adversary Complaint she asserts that she did not reaffirm this debt. At ¶ 15 she alleges that it was reaffirmed. It was not reaffirmed. Her personal liability on that obligation was discharged on April 6, 2010.

According to her Adversary Complaint, 12 days after entry of the discharge she received a letter from Wells Fargo Home which acknowledged the discharge of her personal liability but noted that the past due payments were to be made by May 18, 2010 or the Mortgage Note would be accelerated and that remedies would be pursued as provided for in the loan documents. Adversary Complaint Exhibit D. She was told that the past due amount on the account was $8,286.61 and that she had to pay it and any additional monthly charges to avoid acceleration.

The letter also noted that while it was an attempt to collect a debt, if the debt had been discharged it was not intended as an attempt to collect a debt, but that the creditor had a security interest in the property and would exercise its rights against the property.

Standing alone, this letter is problematic. It acknowledges the Plaintiff’s discharge, however, it is an attempt to collect a debt. Without more, it could be actionable. However, the court will evaluate the entire course of the parties’ conduct, specifically the second and third letters as well as the Plaintiff’s acceptance of an offer to modify her loan.

The Plaintiff was sent another letter on May 13, 2010 informing her that Wells Fargo Home was considering her for a program that could assist her in curing the delinquency on her loan by adding the past due interest or escrow payments to the outstanding loan balance and/or by extending the term of her loan. Adversary Complaint Exhibit E. She was also told that until she had been approved for a modification normal default servicing would continue. The letter also stated that it was required by the Fair Debt Collection Practices Act (“F.D.C.P.A.”) to inform her that if the loan was delinquent or in default any information collected would be used for that purpose and that if a discharge had been obtained Wells Fargo Home would exercise its rights against the property and was not attempting to collect the discharged debt from her personally. The Plaintiff was required to make a $4000 initial payment for Wells Fargo Home to consider giving her a loan modification.

On July 29, 2010, Wells Fargo Home sent her a letter informing her that her request for a modification had been approved. Adversary Complaint Exhibit F. She had to submit certain documents and payments within 10 days or it would conclude that she was no longer interested in modifying her loan.

The Plaintiff filed this adversary proceeding close to seven years later, alleging that she was convinced to reaffirm the $254,000 loan although the property was severely underwater.

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