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Lessons from a Court Decision: Violating the Discharge Injunction

Posted on Jul 3, 2012 in Bankruptcy, Bankruptcy Information, Chapter 7

The decisions that courts make on cases other than our own are still important to read.  They are important because they guide our practice and will be useful if we see the same facts.  A recent decision by the Eastern District of Wisconsin Bankruptcy Court shows us why.

In the recent decision, in a case called In Re Myers, the court was asked to decide if a creditor had violated the discharge order and had attempted to collect a debt after a husband and wife filed Chapter 7 and received their discharge, or release of debts.  In this case, the court ruled that the creditor was safe.

The reason the creditor was ok in its actions was not that it was polite – far from it.  The creditor was rude, possibly obscene, and may have even been harassing the debtors.  But the debt was a business debt that was not guaranteed by either of the debtors.  So the debt was solely that of the debtors’ business.  The debt wasn’t listed and the creditor didn’t even have notice of the debt until some time much later than the filing date.  It wasn’t listed because the creditor didn’t have a “claim”, or a right to money, from either the husband or the wife. It had a claim against the business, which ultimately filed its own bankruptcy.

Certainly if the creditor intentionally sued the business after knowing that the business filed bankruptcy, it could be in trouble for violating the “automatic stay”, the right of the filer to be protected from lawsuits, garnishments, and other attacks.  But that was never an issue here.

The moral of the story:  It is very important to separate individual debts (debts a person owes) from business debts (debts the LLC or corporation owes that cannot be traced to the individual person).  That will also determine who gets the benefit of the discharge and automatic stay, and when it is inappropriate to fight a creditor for their actions.

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