You know it won’t go well for the creditor in a discharge violation case when the opinion opens by characterizing the debtor as a single mother and registered nurse who discovers her $20K bank balance is now negative.
And sure enough, the debt buyer trying to collect a two-decade-old credit card debt ended up $64,000 poorer at the end of the day, including $21,500 in punitive sanctions.
The 2002 bankruptcy
The case of Amanda McIntosh addressed the Taggart safe harbor of holding a “fair ground of doubt” that a debt was discharged. In contrast to the convoluted post-discharge procedural history in Taggart, the facts in McIntosh are straightforward and familiar. She listed her credit card debt to Direct Merchants Bank in her 2002, no asset Chapter 7. In the course of the discharge violation motion, it developed that Direct Merchants Bank is a dba of Metris Companies.
Metris assigned the debt to Florida Credit Research who, five months after entry of discharge, filed a collection action against McIntosh in state court to collect $7,382. Judgment followed.
Collection in 2023
Twenty years later, Florida Credit Research levied McIntosh’s bank accounts, including the one she shared with her high school senior daughter. The bankruptcy case was reopened to prosecute the discharge violation.
Florida Credit Research contended the debt to its assignor Metris was not scheduled since it was its fictitious business name, Direct Merchants Bank, that appeared on the schedules. Therefor, it claimed, the debt was not discharged. This despite Florida Credit Research having had a decades-long business relationship with Metris collecting delinquent debts. As an aside, it appeared that Direct Merchants Bank was not a bank at all, but that didn’t drive the results.
So, the central question became fate of allegedly unscheduled debt and whether there was fair doubt that the debt scheduled as Direct Merchants Bank was discharged. In reaching his decision, Judge Scott Grossman analyzed section 523(a)(3)(A) which excludes from the discharge debts not scheduled in time for the creditor to file a timely proof of claim.
He flatly rejected Florida Credit Research’s contention that to discharge an unscheduled debt in a no-asset case, the burden was on the debtor to reopen the case and seek a determination of the dischargeability of the debt. Bartenwerfer reminds us, he wrote, that exceptions to discharge “should not extend beyond their stated terms.” Without doubt, scheduled or not, McIntosh’s debt to Metris was discharged as a matter of law.
Also pertinent to the outcome was the debtor’s contact with an attorney for Florida Credit Research in connection with the levy in which she indicated that she had filed bankruptcy in the past. Counsel replied that she should send him papers demonstrating the filing of bankruptcy, rather than looking it up himself. The bankruptcy court held that Florida Credit Research thereby had notice of the bankruptcy and the resulting discharge.
There followed a robust discussion of the court’s power to impose punitive sanctions which are criminal in nature, entitling the subject to enhanced process. The opinion enumerates the multiple opportunities presented to the creditor to develop its case, including two evidentiary hearings.
The creditor’s conduct was found to be overly aggressive, extortive, reckless and callous. Punitive damages were fixed at 50% of the compensatory damages awarded the debtor, which had included her attorneys fees and emotional damages. The evidentiary support for the punies was found in the court’s consideration of punitive sanctions in other footnoted cases.
To borrow a trope from Hank Hildebrand at ConsiderChapter13.org , the takeaway for those collecting on old debt is clearly that PACER is your friend. Further, it behooves you to hold hard when the word “bankruptcy” is mentioned.
For debtor’s counsel, this case is a treasure-trove of stirring characterizations of creditor’s bad acts. It is decisive that even unscheduled debts are discharged in a no-asset case. The opinion is clear and thorough in its analysis without reading like a law review article. And it’s reassuring in that Taggart and its “fair grounds of doubt” about the scope of the discharge is not wide-ranging.