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In re Zachary Allen ; Tiara Donegan

Summarizing by Lars Fuller

Bechtold v. Gillespie (In re Gillespie)

Ninth Circuit BAP No. CC-13-1455-KuDJu
Attorney's fees incurred post-petition are properly awarded against Debtor when Debtor voluntarily returns to the litigation fray as happened in the current case. Debtor could have forfeited his litigation rights and the discharge shield would have protected him. Instead, Debtor asserted rights in certain collateral and cross-claims. “[E]ven if a cause of action arose prepetition, the discharge shield cannot be used as a sword that enables a debtor to undertake risk-free [postpetition] litigation at others’ expense.” In re Ybarra, 424 F. 3d 1018, 1026-27 (9th Cir. 2005). Debtor’s role as a Defendant and Cross-Claimant (as opposed to Plaintiff) does not change the rule announced in Ybarra.
Procedural context:
Plaintiff commences litigation in state court. Debtor files a cross-claim. After Debtor files bankruptcy, Plaintiff is granted limited relief from stay to proceed with certain aspects of the state court litigation. After prevailing in state court, Plaintiff returns to bankruptcy court to enforce the state court judgment including an award of attorney's fees. Over the course of many months, the bankruptcy court issues findings and oral rulings that Debtor voluntarily chose to resume participation in the state court litigation and that the fee ward was not discharged. The final judgment concluded the fees were discharged. Creditor appeals.
Debtor defaulted on a loan. Lender sold it's interest in the collateral to Plaintiff Bechtold who then attempted to enforce his right to possession of the colalteral in state court. Debtor cross-claimed and alleged that the sale from lender to Plaintiff Bechtold constituted a wrongful foreclosure because the sale occurred before the lender took possession of the collateral.
Kurtz, Dunn, and Jury, Bankruptcy Judges.

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