A new case out of the 9th Circuit has opens the door to raising FDCPA Claims for discharged obligations.
Previously, the case of Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 510 (9th Cir. 2002) had effectively eliminated the ability of individual debtors in the 9th circuit to bring claims under the Fair Debt Collection Practices Act 15 U.S.C. Sec. 1692 for any debt that was discharged in bankruptcy. Effectively, once a debt was discharged, the individual’s sole remedy for a debt collection violation was to request the bankruptcy court issue sanctions for a violation of the court’s discharge order. This sometimes eliminated the individual’s remedy as each remedy would depend upon the preference of the judge as to how such a violation would be addressed. Sometimes it would be helpful, sometimes not. The bankruptcy remedy however did not necessarily include attorney’s fees or costs for curing or addressing the violation, meaning that individuals often had to pay an attorney to address the bad acts of a third party.
The ninth circuit has now issued a new ruling which may resurrect these rights.
In Mankian v. Peters & Freedman, et al. (Case No. 19-55393) (9th Circuit COA) the court found that violations that are not rooted in the violation of the discharge order are not precluded from applying for a remedy under the FDCPA.
The court found that Walls did not extend to the circumstance of a cause of action that arose separately under the Fair Debt Collection Practices Act without reference to the discharge order.
In this case the Debtor, Mankian, had completed a Chapter 13 Plan and paid off an HOA debt through the plan. The entry of the discharge did not discharge any obligation owed to the HOA because there was no obligation to discharge at the end of the case.
Post bankruptcy, the HOA committed a billing error and initiated foreclosure on the Debtor and serving the Debtor with a Notice of Default after having a process server break into his yard and scare his family. They called the police on the server. Thereafter the server gave the Notice of Default to the Debtor. Soon thereafter it was resolved that there was no debt.
The Debtor sued under the FDCPA and the HOA responded that such a suit was precluded by the discharge injunction as stated in Walls. The trial court upheld and what followed was 8 years of litigation up to the Ninth Circuit Court of Appeals.
The Ninth Circuit took note that the debt in question was not discharged by the Debtor, and the violation in question had nothing to do , nor derived from, the entry of discharge in the case. As such the FDCPA remedy was available to the Debtor.