Bankruptcy Debtor has Option to Sue Mortgage Company for either Discharge Injunction or FDCPA Violations

Bankruptcy Debtor has Option to Sue Mortgage Company for either Discharge Injunction or FDCPA Violations

Bankruptcy Debtor Sues Mortgage Company

A bankruptcy debtor who has legally discharged her mortgage obligation in Chapter 13 bankruptcy may take legal action against the mortgage company in either Bankruptcy Court for Discharge Violations or in Federal District Court for violations of the Fair Debt Collection Practices Act.

In Garfield v. Ocwen Loan Servicing, LLC, 15-527 (2d Cir. Jan. 4, 2016), the debtor discharged a residential mortgage obligation in her Chapter 13 bankruptcy. She continued making mortgage payments after her bankruptcy to stop foreclosure proceedings and continued to live there. When she later stopped paying, the mortgage company falsely claimed that she owed amounts which had been already been discharged.

The debtor filed suit in Federal District Court, but the trial court dismissed the complaint, saying that the bankruptcy code precluded an FDCPA claim and that her remedy was limited to bankruptcy court for a violation of the discharge injunction. But the Second Circuit Court of Appeals REVERSED that decision.

The Court noted that if a creditor violated a provision of the automatic stay before the discharge, a remedy under § 362(k) of the bankruptcy code exists, but that no specific remedy is provided for a later violation of the discharge injunction, only a general motion for contempt. Instead of concluding that the bankruptcy code impliedly repealed the debtor’s FDCPA remedies, the 2d Circuit ruled that no express or implied repeal of the debtor’s remedies was intended in the bankruptcy code, and that the debtor could proceed with her FDCPA in the District Court.

In allowing the Debtor her FDCPA remedy in District court, the Second Circuit joins the Third Circuit in Simon v. FIA Card Services, N.A., 732 F.3d 259, 274 (3d Cir. 2013), and the Seventh Circuit in Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004). All of these courts essentially agree that no irreconcilable conflict exists between the two post-discharge remedies of the Bankruptcy Code and the FDCPA. There is no reason to assume that Congress did not expect these two statutory schemes to coexist in the post- discharge context.

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Author: Rex C. Anderson

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