In re Fravala, ___BR___(BkyCt, MD Fla Aug 10, 2017)
In re Fravala, ___BR___(BkyCt, MD Fla Aug 10, 2017): Bankruptcy Judge Awarded No Damages to Debtor for Willful Stay Violation Since Debtor Failed to Mitigate Damages
I. Nondischargeability of Debt under Sect. 1328(a) and 532(a)(3)
Even though the Debtor did not understand the effect of the guaranty, the Defendant was a known creditor on the petition date by virtue of his signature on the agreement. The Debtor’s liability under the guaranty was a contingent claim on the date that he filed his Chapter 13 petition. A contingent claim as of the petition date is a prepetition claim for the purposes of filing the schedule of a debtor’s liabilities under Section 521 of the Bankruptcy Code.
The Debtor did not list the Defendant as a creditor on his bankruptcy schedules.
Section 1328(a) of the Bankruptcy Code provides that a Chapter 13 discharge generally discharges a debtor from all unsecured debts provided for by the plan, but does not discharge the debtor from any debt of the kind specified in Section 523(a)(3) of the Code.
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit-if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; 11 USC 523(a)(3) is only concerned with the ability of a creditor to file a proof of claim in order to take part in the distribution of assets from the bankruptcy estate.
In this case, the Defendant did not have knowledge of the case until 3 years after the claims bar date had passed. Therefore, the Defendant did not have the opportunity to participate in any payment from the Chapter 13 estate.
Also, even if it had filed a claim in August of 2014, it would not have received any distribution under the confirmed plan.
Untimely claims are not allowed in Chapter 13 cases, and creditors who file untimely claims are not permitted to share in distributions under a confirmed Chapter 13 plan, even if they did not have notice of the bankruptcy case until after the claims bar date had passed. Instead, the Bankruptcy Code gives such creditors who were not given notice of the bankruptcy filing other remedies, such as provided for in Section 523(a)(3).
The Defendant’s claim was not discharged under 1328(a) and 523(a)(3) since the debt was not listed on the Debtor’s schedules in time for it to file a timely proof of claim, and the Defendant did not have notice or actual knowledge of the bankruptcy case in time to file a timely claim.
II. Violation of the Automatic Stay and Discharge Injunction
The Defendant sued the Debtor for breach of contract. A Motion for Final Judgment was set for hearing. The day before the hearing, the Debtor filed a Suggestion of Bankruptcy and served the Defendant’s attorney.
More than one year after the Suggestion was filed, the Defendant filed a Motion for Summary Judgment against the Debtor in the state court case. The Debtor contends that the filing of the the Motion for Summary Judgment was a willful violation of the automatic stay by the Defendant since it was an attempt to collect a prepetition debt from the Debtor after the Defendant had actual knowledge of the bankruptcy filing.
The filing of a bankruptcy petition operates as an automatic stay of any act to recover or collect a prepetition claim against the Debtor. Any violation of the stay is prohibited by Section 362, and a “willful” violation occurs if the creditor (1) knew the stay was invoked and (2) intended the actions that violated the stay.
In this case, the Defendant violated the automatic stay when it filed its Motion for Summary Judgment in state court. The Motion constituted an attempt to collect a prepetition of the Debtor. The Debtor’s liability on the guaranty was not in default on the date of the filing, and the debt was a contingent liability on that date. Generally, contingent claims as of the petition date are subject to the automatic stay.
Second, the Defendant filed the Motion for Summary Judgment while the Chapter 13 case was pending, and after the Defendant had actual knowledge of the bankruptcy case.
Finally, the nondischargeable character of the debt has no effect on the application of the automatic stay. If a creditor wishes to pursue a nondischargeable debt during the bankruptcy court, its recourse is to file a motion for relief from stay in the Bankruptcy Court.
For these reasons, the Court found that the Defendant willfully violated the automatic stay.
III. Failure to Mitigate Damages for Stay Violation
Section 362(k) of the Bankruptcy Code provides a remedy for Debtors harmed by willful violations of the automatic stay. It allows a Debtor to recover actual damages, including costs, attorney’s fees, and punitive damages. The purpose is to hold creditors liable for injuries caused by a willful violation of the stay.
However, a Debtor has a duty to mitigate damages that may occur as the result of a willful stay violation under 362(k).
In this case, the Debtor did not mitigate damages and is therefore not entitled to monetary damages. First, the Debtor did not inform the Defendant of his Chapter 13 case for almost 3 years while the Defendant tried to enforce its claim. The Debtor had several chances in court to inform the Defendant of the Chapter 13 case, but chose not to. In addition, even after the Debtor filed its Suggestion of Bankruptcy, he chose to exacerbate the situation by defending himself in the state court action.