By Anerio Altman
This week, after a three year slough, Lake Forest Bankruptcy received a verdict in favor of its client.
At the heart of the case is a Creditor who committed an egregious violation of the discharge injunction and argued that he was above the law.
The facts of the case are that a creditor chose to continue trying to collect upon a discharged pre-petition debt because that creditor did not believe that the Discharge Injunction applied to him. His belief was based upon a “No-Discharge” clause inserted into a loan agreement which stated that his loan could not be discharged in the Bankruptcy Court. Such agreements are void as a matter of public policy. Bank of China v. Huang (In re Huang), 275 F.3d 1173. multiple attempts to collect a debt, and multiple warnings to stop, he was sued in the Bankruptcy Court.
The Court found in case called In Re Zilog 450 F. 3d 996 sanctions cannot be issued. Per Zilog, a creditor cannot be the subject of sanctions unless they knew that the injunction in question applied to him and and they intended the act that violated the injunction. While there was no question the Creditor intended the act, the Court found that the creditor held the subjective belief that the law did not apply to him and thus sanctions were inappropriate.
After approximately three years, the Bankruptcy Appellate Panel found in our client’s favor that while Zilog still remained the law of the land, the ruling could not be read so expansively that a Creditor could simply choose not to believe in the injunction and be ameliorated from any further liability. The Creditor was subject to sanctions.
The case has been reversed and remanded back to the Trial Court for a further determination of damages.