District Court Finds that Bankruptcy Court Could exercise its Civil Contempt Power under 11 U.S.C. §105(a) to remedy Violations of Discharge Injunction by City and School District

District Court Finds that Bankruptcy Court Could exercise its Civil Contempt Power under 11 U.S.C. §105(a) to remedy Violations of Discharge Injunction by City and School District

This case involves allegations that Defendants, the City  and the School District, (collectively the “City” or “City Defendants”) attempted to collect debts that had been discharged in Plaintiff’s bankruptcy, in violation of the discharge injunction entered under 11 U.S.C. § 524. The United States Court of Appeals for the Third Circuit remanded this action to this Court with instruction to determine if the City had notice of the bankruptcy and what effect, if any, such notice has on the current Complaint.

In 2004, the Debtor filed for bankruptcy under Chapter 13 of the Federal Bankruptcy Code. In the bankruptcy proceeding, Thomas filed proof of claims—or debts—owed to the City for three properties he owned. These debts related to real estate taxes on the properties, which the Debtor failed to pay.

A Chapter 13 bankruptcy enables an individual debtor to propose a repayment plan and make installments to his creditors over three to five years. Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015) (citing 11 U.S.C. §§ 1306(b), 1322, 1327(b)). Secured creditors who have notice of a bankruptcy may file a proof of claim to establish the debtor’s obligation. 11 U.S.C. § 501(a). Secured creditors who fail to do so may face a “cramdown” of their secured claims. Generally speaking, the debtor is entitled to a discharge once he completes the Chapter 13 plan, thereby obtaining his “fresh start.” Harris, 135 S. Ct. at 1835. The discharge releases the debtor from all debts provided for by the plan (“pre-petition debts”), with limited exceptions. 11 U.S.C. § 524. Creditors may no longer continue any collection action against the debtor to recoup discharged obligations.

On August, 26, 2004, noting that there was “no answer or appearances by respondent,” the Bankruptcy Court entered a cramdown order with respect to the debts on the properties. After completing the Chapter 13 plan more than five years later, the Debtor received a discharge.

On June 13, 2015, the Debtor initiated this action against the City alleging that it was attempting to collect debts that had been discharged in the earlier bankruptcy.

Specifically, the Debtor claimed that the City was attempting to collect outstanding real estate taxes incurred from 1984 to 2004 on his properties, which had been previously discharged in the bankruptcy. The Debtor sought an injunction prohibiting the sale of the two properties, as well as compensatory and punitive damages for Defendants’ violation of the bankruptcy discharge.

On February 3, 2016, Defendants moved to dismiss the Complaint on the grounds of res judicata, or claim preclusion. They argued that although this “dispute concerns the real property” an earlier action the Debtor filed in United States Bankruptcy Court. On July 7, 2016, in an Opinion and Order, this Court granted Defendants’ Motion to Dismiss.

On March 16, 2017, the United States Court of Appeals for the Third Circuit decided that the Debtor’s claims were not barred by claim preclusion or issue preclusion, and remanded the case. This Court was instructed to “decide anew, in the context of the Debtor’s current complaint, and after providing the parties with notice and an opportunity to be heard, whether the City had sufficient notice of the bankruptcy.” If this Court “determines that the City had notice of the 2004 bankruptcy, then it will decide what effect, if any, the discharge had on the matters in the Debtor’s current complaint.”

The Court scheduled a status conference on the matter.

 

Log In to READ MORE

Please note, in order to view NACBA Member Content, you must sign in and then visit NEWS. If you are not a NACBA member, you may Become a NACBA Member 

No Comments

Post a Comment