Chionis v. Starkus (In re Chionis)

Citation:
In Re Chionis, 9th Cir. B.A.P., CC-12-1501-KuBaPa (Dec 27, 2013) [NOT FOR PUBLICATION]
Tag(s):
Ruling:
In an unpublished opinion, the 9th Circuit Bankruptcy Appellate Panel UPHELD part of the bankruptcy court finding that Creditor Appellee (Starkus) violated the bankruptcy discharge and the discharge injunction by bringing a suit in small claims court to recover a debt discharged by Debtor Appellant's (Chionis) Chapter 7 bankruptcy. The Appellate Panel REVERSED the finding by the bankruptcy court that Creditor Appellee (Starkus) did not subjectively know the injunction applied to him as clearly erroneous. Accordingly, the Appellate Panel VACATED the judgment in favor of Creditor Appellee (Starkus) and REMANDED the proceeding back to the bankruptcy court.
Procedural context:
The Bankruptcy court entered a judgment after trial in favor of Creditor Appellee (Starkus), finding that Creditor Appellee (Starkus) intended the actions he took to recover debt discharged by bankruptcy, by bringing a suit in small claims court, violated the bankruptcy discharge and the discharge injunction; but also finding that Creditor Appellee (Starkus) did not subjectively know the injunction applied to him. Debtor Appellant (Chionis) appealed.
Facts:
In 2006, Starkus loaned $70,000 to Divine Products, Inc. (“Loan”). Chionis, who had an interest in and served as an officer of Divine Products, agreed to guarantee Divine Products’ Loan obligations (“Debt”). The guaranty agreements Chionis signed provided in part that any bankruptcy by Divine Products would not discharge or otherwise affect the Debt. The guaranties also contained a provision stating that the guarantor’s liability would not be discharged except by full satisfaction of the Debt. According to Starkus, he bargained for this language to be included in the guaranties in part to protect himself from any bankruptcy filing by Chionis and from the effect of any bankruptcy discharge Chionis might receive. In August 2009, Chionis and his wife (collectively,"Debtors") commenced their bankruptcy case by filing a chapter 7 petition. Starkus was duly scheduled on the Debtors' bankruptcy schedules, and Starkus received the standard form notice from the bankruptcy court regarding the filing of the Debtors' chapter 7 bankruptcy case. Starkus attended the Debtors' § 341(a) Hearing, but he did not otherwise actively participate in the bankruptcy case. Specifically, he never attempted to challenge in the bankruptcy court the Debtors’ right to discharge the Debt. On February 8, 2010, the bankruptcy court entered a standard form chapter 7 discharge order granting the Debtors a discharge pursuant to § 727. The bankruptcy court sent Starkus a copy of the discharge order, and Starkus has not disputed that he received a copy of the order. The form order was substantially the same as Official Form 18 and, on the reverse side, described in lay terms the effect of the discharge as follows: from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor. . . . A creditor who violates this order can be required to pay damages and attorney's fees to the debtor. The reverse side of the discharge order further explained that “[m]ost, but not all, types of debts are discharged if the debt existed on the date the bankruptcy case was filed.” The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor. . . . A creditor who violates this order can be required to pay damages and attorney's fees to the debtor. The concluding paragraph on the reverse side cautioned that its explanation of the effect of the discharge was a general summary of the law and encouraged interested parties to consult an attorney if they needed to ascertain the precise effect of the discharge to their specific situation. In July 2010, notwithstanding his prior receipt of the discharge order, Starkus filed a complaint against Chionis in the Small Claims Court for the City of Temecula, California (Case No.TES10001805). Starkus sought to recover $7,500, the maximum jurisdictional amount covered by the Temecula Small Claims Court, on account of the Debt.
Judge(s):
KURTZ, BALLINGER and PAPPAS,

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