The Maine Bankruptcy Court recently ruled in Canning v. Beneficial Maine and HSBC that Beneficial Maine and HSBC violated the discharge injunction when they sent notices seeking payment of money for a discharged debt on real estate that the debtors surrendered in a Chapter 7 bankruptcy case. The Court awarded modest damages against Beneficial Maine and HSBC, noting that the limited efforts to collect the discharged debt were corrected later by the lenders.
Debtors also asserted that the lenders violated the discharge injunction by refusing to either foreclose on the surrendered property or release their mortgage lien, using the In re Pratt decision by the First Circuit Court of Appeals as the basis for the demand that the lenders take one of the two courses of action. The Bankruptcy Court concluded that In re Pratt was inapplicable in this circumstance because the real estate had some value, notwithstanding the fact that the real estate was in poor condition, was abandoned, and had lowered in value from $86,000 at the time of filing to $75,000 a year later. In Pratt, the First Circuit held that GMAC's failure to release its lien on an abandoned vehicle was a violation of the discharge injunction. The Bankruptcy Court ruled against Canning on this second alleged discharge injunction, but Canning has appealed to the Bankrutpcy Appellate Panel for the First Circuit (BAP). The BAP appeal process is expected to take 6 months to conclude, with a later appeal to the First Circuit Court of Appeals to follow.