Media
Willful and malicious injury?
January 02, 2012
Wells Fargo v. Maryam Nawroz; 11-01183-BFK; 12/22/2011
This suit was brought by Wells Fargo against Chapter 7 debtor, Maryam Nawroz, to determine the dischargeability of a debt owed by the debtor to Wells Fargo.
The debt arose out of a mistake by Wells Fargo when the debtor transferred money out CD’s held by Wells Fargo into a retirement account. Wells Fargo mistakenly credited the Debtors retirement account twice. Before Wells Fargo realized the mistake, the Debtor transferred the money out of her retirement account into a checking account with Union Bank. The Debtor then wrote a check on the amount. This check would not have cleared but for the mistaken transfer by Wells Fargo.
The Debtor testified that she was severely depressed at the time of the transfers, she was not keeping close tabs of her finances of business affairs. The Debtor testified that she did not know about the mistaken transfer and used the money for a family emergency.
In this action to determine nondischargeability of debt, Wells Fargo has the burden of proof. Section 523(a)(6) excepts from a debtor’s discharge debts that are the result of “willful and malicious injury by the debtor to another entity of the property of another entity.” Judge Kenny recognized that the Supreme Court held that “willfulness” requires more than just a negligent, or even reckless, injury; rather, the term “willful” requires a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998). An injury is only willful and malicious “if the actor purposefully inflicted the injury or acted with substantial certainty that injury would result,” however, “a debtor may be assumed to intend the natural and consequence of his acts.”
The Court decided that the Debtor’s use of the funds was both deliberate and intentional because the debtor intended to deprive Wells Fargo of the rightful use of its funds, which was the natural consequences of her acts. This satisfies the willful element.
The Fourth Circuit has held that a debtor may act with malice even though he or she bears no subjective ill will toward, and does not specifically intend to injure, his or her creditor. Further elaborating, the Fourth Circuit stated that the Debtor’s subjective state of mind is relevant . . .and that a particular debtor’s knowledge may be proved by circumstantial evidence: Implied malice may be shown by the acts and conduct of the debtor in the context of the surrounding circumstances.
A Debtor’s injurious act done deliberately and intentionally in knowing disregard of the rights of another is sufficiently willful and malicious and will prevent discharge of the debt. Here the Debtor made a conscious choice to use the funds rather than alert Wells Fargo of the mistake. Because the Fourth Circuit has stated that the proper focus is not on the Debtor’s good intentions, but simply on her exercise of dominion and control over funds that she knew belonged to another, Judge Kenney felt constrained to find the actions were malicious and that the debt was non-dischargeable.
Balance on Credit Report Does Not Need to Be Zeroed Out Until Discharge
October 21, 2011
In re Jones, Case No. 09-14499-BFK
The Debtor filed a motion for contempt based on the confirmation order based and how Capital One reported the debtors account to the credit rating agency. The Chapter 13 plan contained a provision that “if a creditor reports to the consumer reporting agencies the receipt and timeliness of the payments on any debt dealt with in this plan, then the claim as altered by the confirmed plan, rather than the original loan agreement, should form the basis for the report.” Further, the debtor argued that the reporting of the debt violates the Consumer Data Industry Association’s Credit Reporting Resource Guide.
Since the confirmation of the plan, Capital One has continued to report the original loan balance to the credit reporting agencies. Capital One argued that (a) it did not have adequate notice of the Confirmation Order pursuant to Bankruptcy Rule 2002(c)(3), (b) the credit reporting resource guide does not constitute a national standard, and (c) the confirmation order does not reference or incorporate the CDIA guide. Further, Capital One’s view is that plan only required that it update the balance as payments are received under the Plan.
The Court decided that it was unable to conclude that the resource guide constitutes a national, legally enforceable standard for the reporting of debts in a Chapter 13 case. The Court held that “a violation of a confirmation order is an act of contempt, which may be remedied by the Court pursuant to 11 U.S.C. § 105. In order to be found in contempt of a Court order, the movant must show: “(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) that the decree was in the movant’s ‘favor’; (3) that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) that the movant suffered harm as a result.” United States v. Under Seal (In re Grand Jury Subpoena), 597 F. 3d 189, 292 (4th Cir. 2010).
With respect to any violation of Bankruptcy Rule 2002(c)(3), the court held that even if there were a violation, the confirmation order is res judicata citing the Supreme Court in United States Aid Funds v. Espinoza.
Continuing in its analysis of debts reported to credit rating agencies, the court noted that other “Courts have held that the failure to correct the pre-discharge reporting of a debt on the debtor’s credit report, without additional evidence of some coercive efforts to collect the debt (phone calls, letters, etc.), does not rise to the level of a discharge injunction violation for which the creditor may be held in contempt.” Citing In re Dendy, 396 B.R. 171, 182 (Bankr. D.S.C. 2008), the Court denied the violation, stating “[t]he mere existence of a discharged debt on a debtor’s credit report, when reported prior to the discharge injunction and not combined with evidence of actions by a creditor to collect the debt after the injunction arose, does not rise to the level of action that violates a discharge injunction.”
It is important to note that the balance should be reported as zero upon receipt of the discharge even though there will not be an action in bankruptcy court for failure to report the balance as zero during the life of the Chapter 13 plan.
Chapter 7 then Chapter 13: Abuse of the spirit of Chapter 13?
October 12, 2011
In re Hixon; Case No. 11-30850-DOT; September 9th, 2011
The Trustee objected to the the chapter 13 plan on the grounds that the plan or petition was not filed in good faith under 11 USC 1325(a)(5) and (a)(7).
The Trustee alleged that the petition and plan were not filed in good faith because the only debt being dealt with in the proposed plan was previously excepted from discharge in the debtor’s 2010 chapter 7 case. In that case, the debtor entered into a consent judgment excepting from discharge indebtedness of amounts owed to a creditor pursuant to the fraud exceptions of sections 523(a)(2)(A) and (a)(4).
Before a court can approve a chapter 13, the court must find that the plan was “proposed in good faith.” 11 U.S.C. 1325(a)(3). The burden is on the debtor and the factors to be considered are as followed:
(1) percentage of the proposed repayment;
(2) debtor’s financial situation;
(3) the period of time payment will be made;
(4) debtor’s employment history and prospects;
(5) that nature and amount of unsecured claims;
(6) debtor’s past bankruptcy filings;
(7) debtor’s honesty in representing facts; and
(8) any unusual or exceptional problems facing the particular debtor.
Deans v. O’Donnell, 692 F.2d 968, 973 (4th Cir. 1982).
The 4th Circuit has also held that pre-filing conduct and whether a claim is non-dischargeable under chapter 7 are also factors in evaluating a debtor’s good faith. Neufeld v. Freeman, 794 F.2d 149, 152 (4th Cir. 1986). Using these factors, the court must examine the “totality of circumstances” in each case to determine if the proposed plan violates the purpose or spirit of chapter 13.
The Trustee argued that the sole purpose of the plan was to delay payment of the nondischargeable debt. The debtor admitted that the purpose of the filing is to relieve him from the “garnishment and other judgment collection methods.” The court noted that it had previously examined similar circumstances and found that bad faith existed when a debtor proposed a low percentage repayment on a debt that was found to be nondischargeable under section 523(a)(2).
The Court noted the presence of several indicia of bad faith, including a low payout percentage, nondischargeable debt incurred by fraud, and a pending chapter 7 case that does not relieve him of that debt. The court found that nothing about this plan served to give the debtor a fresh start, which is the primary goal of bankruptcy laws but instead, only reduced payments to which the creditor was entitled to under his judgment and garnishment, the only function of which is to frustrate Roberts’ collection efforts.
The Trustee also raised the issue of good faith under section 1325(a)(7) to which the court found that the same good faith criteria found in Deans v. O’Donnell and, likewise, reached the same conclusion: neither the plan nor the petition were filed in good faith.
